Correlation Between Citic Guoan and Xiandai Investment

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

By analyzing existing cross correlation between Citic Guoan Wine and Xiandai Investment Co, you can compare the effects of market volatilities on Citic Guoan and Xiandai Investment 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 Guoan with a short position of Xiandai Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic Guoan and Xiandai Investment.

Diversification Opportunities for Citic Guoan and Xiandai Investment

0.84

Correlation Coefficient

Citic Guoan  Xiandai Investment

Very poor diversification

The 3 months correlation between Citic and Xiandai is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and Xiandai Investment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiandai Investment and Citic Guoan 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 Guoan Wine are associated (or correlated) with Xiandai Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiandai Investment has no effect on the direction of Citic Guoan i.e., Citic Guoan and Xiandai Investment go up and down completely randomly.

Pair Corralation between Citic Guoan and Xiandai Investment

Assuming the 90 days trading horizon Citic Guoan is expected to generate 1.98 times less return on investment than Xiandai Investment. In addition to that, Citic Guoan is 1.25 times more volatile than Xiandai Investment Co. It trades about 0.05 of its total potential returns per unit of risk. Xiandai Investment Co is currently generating about 0.11 per unit of volatility. If you would invest  388.00  in Xiandai Investment Co on September 26, 2024 and sell it today you would earn a total of  64.00  from holding Xiandai Investment Co or generate 16.49% return on investment over 90 days.

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

Citic Guoan Wine  vs.  Xiandai Investment Co

Citic Guoan Wine

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Guoan Wine are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Citic Guoan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xiandai Investment

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Citic Guoan and Xiandai Investment

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

The idea behind Citic Guoan Wine and Xiandai Investment Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.