Correlation Between One World and Citic

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

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

Diversification Opportunities for One World and Citic

0.08

Correlation Coefficient

One World  Citic

Significant diversification

The 3 months correlation between One and Citic is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding One World Universe and Citic Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Ltd ADR and One World 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 One World Universe 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 Ltd ADR has no effect on the direction of One World i.e., One World and Citic go up and down completely randomly.

Pair Corralation between One World and Citic

Given the investment horizon of 90 days One World Universe is expected to generate 3.99 times more return on investment than Citic. However, One World is 3.99 times more volatile than Citic Ltd ADR. It trades about 0.06 of its potential returns per unit of risk. Citic Ltd ADR is currently generating about 0.07 per unit of risk. If you would invest  0.68  in One World Universe on September 30, 2024 and sell it today you would earn a total of  0.03  from holding One World Universe or generate 4.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.85%
Values	Daily Returns

One World Universe  vs.  Citic Ltd ADR

One World Universe

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in One World Universe are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, One World showed solid returns over the last few months and may actually be approaching a breakup point.

Citic Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with One World and Citic

The main advantage of trading using opposite One World and Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if One World 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 One World Universe and Citic Ltd ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.