Correlation Between China Citic and HengFeng Information

Can any of the company-specific risk be diversified away by investing in both China Citic and HengFeng Information at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining China Citic and HengFeng Information into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Citic Bank and HengFeng Information Technology, you can compare the effects of market volatilities on China Citic and HengFeng Information and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in China Citic with a short position of HengFeng Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Citic and HengFeng Information.

Diversification Opportunities for China Citic and HengFeng Information

0.15

Correlation Coefficient

China Citic  HengFeng Information

Average diversification

The 3 months correlation between China and HengFeng is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and HengFeng Information Technolog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HengFeng Information and China Citic is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on China Citic Bank are associated (or correlated) with HengFeng Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HengFeng Information has no effect on the direction of China Citic i.e., China Citic and HengFeng Information go up and down completely randomly.

Pair Corralation between China Citic and HengFeng Information

Assuming the 90 days trading horizon China Citic Bank is expected to generate 0.49 times more return on investment than HengFeng Information. However, China Citic Bank is 2.05 times less risky than HengFeng Information. It trades about 0.05 of its potential returns per unit of risk. HengFeng Information Technology is currently generating about 0.0 per unit of risk. If you would invest  479.00  in China Citic Bank on October 7, 2024 and sell it today you would earn a total of  200.00  from holding China Citic Bank or generate 41.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

China Citic Bank  vs.  HengFeng Information Technolog

China Citic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Citic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Citic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HengFeng Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HengFeng Information Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Citic and HengFeng Information

The main advantage of trading using opposite China Citic and HengFeng Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Citic position performs unexpectedly, HengFeng Information can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in HengFeng Information will offset losses from the drop in HengFeng Information's long position.

The idea behind China Citic Bank and HengFeng Information Technology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.