Correlation Between China Citic and Huaneng Lancang

Can any of the company-specific risk be diversified away by investing in both China Citic and Huaneng Lancang 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 Huaneng Lancang 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 Huaneng Lancang River, you can compare the effects of market volatilities on China Citic and Huaneng Lancang 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 Huaneng Lancang. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Citic and Huaneng Lancang.

Diversification Opportunities for China Citic and Huaneng Lancang

0.07

Correlation Coefficient

China Citic  Huaneng Lancang

Significant diversification

The 3 months correlation between China and Huaneng is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Huaneng Lancang River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaneng Lancang River 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 Huaneng Lancang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaneng Lancang River has no effect on the direction of China Citic i.e., China Citic and Huaneng Lancang go up and down completely randomly.

Pair Corralation between China Citic and Huaneng Lancang

Assuming the 90 days trading horizon China Citic Bank is expected to generate 1.37 times more return on investment than Huaneng Lancang. However, China Citic is 1.37 times more volatile than Huaneng Lancang River. It trades about 0.02 of its potential returns per unit of risk. Huaneng Lancang River is currently generating about -0.08 per unit of risk. If you would invest  706.00  in China Citic Bank on December 30, 2024 and sell it today you would earn a total of  5.00  from holding China Citic Bank or generate 0.71% 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.  Huaneng Lancang River

China Citic Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Huaneng Lancang River

Risk-Adjusted Performance

Very Weak

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

Pair Trading with China Citic and Huaneng Lancang

The main advantage of trading using opposite China Citic and Huaneng Lancang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Citic position performs unexpectedly, Huaneng Lancang 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 Huaneng Lancang will offset losses from the drop in Huaneng Lancang's long position.

The idea behind China Citic Bank and Huaneng Lancang River 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.

Check out your portfolio center.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.