Correlation Between China Citic and Beijing Baolande

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

Diversification Opportunities for China Citic and Beijing Baolande

-0.3

Correlation Coefficient

China Citic  Beijing Baolande

Very good diversification

The 3 months correlation between China and Beijing is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Beijing Baolande Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Baolande Software 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 Beijing Baolande. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Baolande Software has no effect on the direction of China Citic i.e., China Citic and Beijing Baolande go up and down completely randomly.

Pair Corralation between China Citic and Beijing Baolande

Assuming the 90 days trading horizon China Citic Bank is expected to under-perform the Beijing Baolande. But the stock apears to be less risky and, when comparing its historical volatility, China Citic Bank is 3.46 times less risky than Beijing Baolande. The stock trades about -0.02 of its potential returns per unit of risk. The Beijing Baolande Software is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,883  in Beijing Baolande Software on October 23, 2024 and sell it today you would lose (186.00) from holding Beijing Baolande Software or give up 6.45% of portfolio value over 90 days.

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

China Citic Bank  vs.  Beijing Baolande Software

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.

Beijing Baolande Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing Baolande Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beijing Baolande 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 Beijing Baolande

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

The idea behind China Citic Bank and Beijing Baolande Software 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.