Correlation Between Dazhong Transportation and China Citic

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

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

Diversification Opportunities for Dazhong Transportation and China Citic

0.39

Correlation Coefficient

Dazhong Transportation  China Citic

Weak diversification

The 3 months correlation between Dazhong and China is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group 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 Dazhong Transportation 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 Dazhong Transportation Group 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 Dazhong Transportation i.e., Dazhong Transportation and China Citic go up and down completely randomly.

Pair Corralation between Dazhong Transportation and China Citic

Assuming the 90 days trading horizon Dazhong Transportation is expected to generate 44.73 times less return on investment than China Citic. But when comparing it to its historical volatility, Dazhong Transportation Group is 1.03 times less risky than China Citic. It trades about 0.01 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  647.00  in China Citic Bank on December 10, 2024 and sell it today you would earn a total of  53.00  from holding China Citic Bank or generate 8.19% return on investment over 90 days.

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

Dazhong Transportation Group  vs.  China Citic Bank

Dazhong Transportation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dazhong Transportation Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Citic Bank

Risk-Adjusted Performance

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.

Pair Trading with Dazhong Transportation and China Citic

The main advantage of trading using opposite Dazhong Transportation and China Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dazhong Transportation 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 Dazhong Transportation Group 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.