Correlation Between Citic and National Health

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

By analyzing existing cross correlation between Citic Ltd ADR and National Health Scan, you can compare the effects of market volatilities on Citic and National Health 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 Citic with a short position of National Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic and National Health.

Diversification Opportunities for Citic and National Health

-0.21

Correlation Coefficient

Citic  National Health

Very good diversification

The 3 months correlation between Citic and National is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Citic Ltd ADR and National Health Scan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Health Scan and 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 Citic Ltd ADR are associated (or correlated) with National Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Health Scan has no effect on the direction of Citic i.e., Citic and National Health go up and down completely randomly.

Pair Corralation between Citic and National Health

Assuming the 90 days horizon Citic is expected to generate 22.46 times less return on investment than National Health. But when comparing it to its historical volatility, Citic Ltd ADR is 9.0 times less risky than National Health. It trades about 0.03 of its potential returns per unit of risk. National Health Scan is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.10  in National Health Scan on December 29, 2024 and sell it today you would lose (0.38) from holding National Health Scan or give up 34.55% of portfolio value over 90 days.

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

Citic Ltd ADR  vs.  National Health Scan

Citic Ltd ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Ltd ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Citic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

National Health Scan

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Health Scan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, National Health reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citic and National Health

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

The idea behind Citic Ltd ADR and National Health Scan 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.