Correlation Between China Citic and Shanghai Fudan

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

Diversification Opportunities for China Citic and Shanghai Fudan

0.68

Correlation Coefficient

China Citic  Shanghai Fudan

Poor diversification

The 3 months correlation between China and Shanghai is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Shanghai Fudan Microelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Fudan Micro 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 Shanghai Fudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Fudan Micro has no effect on the direction of China Citic i.e., China Citic and Shanghai Fudan go up and down completely randomly.

Pair Corralation between China Citic and Shanghai Fudan

Assuming the 90 days trading horizon China Citic Bank is expected to generate 0.56 times more return on investment than Shanghai Fudan. However, China Citic Bank is 1.79 times less risky than Shanghai Fudan. It trades about 0.06 of its potential returns per unit of risk. Shanghai Fudan Microelectronics is currently generating about -0.05 per unit of risk. If you would invest  680.00  in China Citic Bank on September 20, 2024 and sell it today you would earn a total of  12.00  from holding China Citic Bank or generate 1.76% return on investment over 90 days.

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

China Citic Bank  vs.  Shanghai Fudan Microelectronic

China Citic Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Fudan Micro

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Fudan Microelectronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Fudan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Citic and Shanghai Fudan

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

The idea behind China Citic Bank and Shanghai Fudan Microelectronics 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.