Correlation Between ITOCHU and CITIC

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

By analyzing existing cross correlation between ITOCHU and CITIC Limited, you can compare the effects of market volatilities on ITOCHU and 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 ITOCHU with a short position of CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITOCHU and CITIC.

Diversification Opportunities for ITOCHU and CITIC

-0.14

Correlation Coefficient

ITOCHU  CITIC

Good diversification

The 3 months correlation between ITOCHU and CITIC is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding ITOCHU and CITIC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Limited and ITOCHU 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 ITOCHU are associated (or correlated) with CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Limited has no effect on the direction of ITOCHU i.e., ITOCHU and CITIC go up and down completely randomly.

Pair Corralation between ITOCHU and CITIC

Assuming the 90 days horizon ITOCHU is expected to generate 6.3 times less return on investment than CITIC. In addition to that, ITOCHU is 1.57 times more volatile than CITIC Limited. It trades about 0.01 of its total potential returns per unit of risk. CITIC Limited is currently generating about 0.09 per unit of volatility. If you would invest  96.00  in CITIC Limited on September 1, 2024 and sell it today you would earn a total of  14.00  from holding CITIC Limited or generate 14.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

ITOCHU  vs.  CITIC Limited

ITOCHU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITOCHU has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, ITOCHU is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CITIC Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITOCHU and CITIC

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

The idea behind ITOCHU and CITIC Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.