Correlation Between Shanghai Yanpu and China Citic

Can any of the company-specific risk be diversified away by investing in both Shanghai Yanpu and China Citic 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 Shanghai Yanpu and China Citic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Yanpu Metal and China Citic Bank, you can compare the effects of market volatilities on Shanghai Yanpu and China Citic 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 Shanghai Yanpu with a short position of China Citic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Yanpu and China Citic.

Diversification Opportunities for Shanghai Yanpu and China Citic

0.26

Correlation Coefficient

Shanghai Yanpu  China Citic

Modest diversification

The 3 months correlation between Shanghai and China is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Yanpu Metal and China Citic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Citic Bank and Shanghai Yanpu 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 Shanghai Yanpu Metal are associated (or correlated) with China Citic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Citic Bank has no effect on the direction of Shanghai Yanpu i.e., Shanghai Yanpu and China Citic go up and down completely randomly.

Pair Corralation between Shanghai Yanpu and China Citic

Assuming the 90 days trading horizon Shanghai Yanpu Metal is expected to generate 1.96 times more return on investment than China Citic. However, Shanghai Yanpu is 1.96 times more volatile than China Citic Bank. It trades about 0.07 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.07 per unit of risk. If you would invest  3,730  in Shanghai Yanpu Metal on December 26, 2024 and sell it today you would earn a total of  357.00  from holding Shanghai Yanpu Metal or generate 9.57% return on investment over 90 days.

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

Shanghai Yanpu Metal  vs.  China Citic Bank

Shanghai Yanpu Metal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Citic Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 5 (%) 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.

Pair Trading with Shanghai Yanpu and China Citic

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

The idea behind Shanghai Yanpu Metal and China Citic Bank 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.