Correlation Between Itochu Corp and CITIC

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

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

Diversification Opportunities for Itochu Corp and CITIC

-0.44

Correlation Coefficient

Itochu Corp  CITIC

Very good diversification

The 3 months correlation between Itochu and CITIC is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Itochu Corp ADR and CITIC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Limited and Itochu Corp 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 Corp ADR 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 Corp i.e., Itochu Corp and CITIC go up and down completely randomly.

Pair Corralation between Itochu Corp and CITIC

Assuming the 90 days horizon Itochu Corp ADR is expected to generate 0.83 times more return on investment than CITIC. However, Itochu Corp ADR is 1.2 times less risky than CITIC. It trades about -0.02 of its potential returns per unit of risk. CITIC Limited is currently generating about -0.22 per unit of risk. If you would invest  9,969  in Itochu Corp ADR on September 3, 2024 and sell it today you would lose (73.00) from holding Itochu Corp ADR or give up 0.73% of portfolio value over 90 days.

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

Itochu Corp ADR  vs.  CITIC Limited

Itochu Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Itochu Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 unfluctuating fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Itochu Corp and CITIC

The main advantage of trading using opposite Itochu Corp and CITIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itochu Corp 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 Corp ADR 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.