Correlation Between Super Dragon and China Citic

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

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

Diversification Opportunities for Super Dragon and China Citic

0.8

Correlation Coefficient

Super Dragon  China Citic

Very poor diversification

The 3 months correlation between Super and China is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Super Dragon Engineering Plast 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 Super Dragon 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 Super Dragon Engineering Plastics 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 Super Dragon i.e., Super Dragon and China Citic go up and down completely randomly.

Pair Corralation between Super Dragon and China Citic

Assuming the 90 days trading horizon Super Dragon Engineering Plastics is expected to under-perform the China Citic. In addition to that, Super Dragon is 2.0 times more volatile than China Citic Bank. It trades about -0.02 of its total potential returns per unit of risk. China Citic Bank is currently generating about 0.11 per unit of volatility. If you would invest  663.00  in China Citic Bank on September 25, 2024 and sell it today you would earn a total of  21.00  from holding China Citic Bank or generate 3.17% return on investment over 90 days.

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

Super Dragon Engineering Plast  vs.  China Citic Bank

Super Dragon Enginee

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Super Dragon Engineering Plastics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Super Dragon sustained solid returns over the last few months and may actually be approaching a breakup point.

China Citic Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Super Dragon and China Citic

The main advantage of trading using opposite Super Dragon and China Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Super Dragon 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 Super Dragon Engineering Plastics 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.