Correlation Between Citic Guoan and LianChuang Electronic

Can any of the company-specific risk be diversified away by investing in both Citic Guoan and LianChuang Electronic 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 LianChuang Electronic 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 LianChuang Electronic Technology, you can compare the effects of market volatilities on Citic Guoan and LianChuang Electronic 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 LianChuang Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic Guoan and LianChuang Electronic.

Diversification Opportunities for Citic Guoan and LianChuang Electronic

0.85

Correlation Coefficient

Citic Guoan  LianChuang Electronic

Very poor diversification

The 3 months correlation between Citic and LianChuang is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and LianChuang Electronic Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LianChuang Electronic 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 LianChuang Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LianChuang Electronic has no effect on the direction of Citic Guoan i.e., Citic Guoan and LianChuang Electronic go up and down completely randomly.

Pair Corralation between Citic Guoan and LianChuang Electronic

Assuming the 90 days trading horizon Citic Guoan Wine is expected to under-perform the LianChuang Electronic. But the stock apears to be less risky and, when comparing its historical volatility, Citic Guoan Wine is 1.29 times less risky than LianChuang Electronic. The stock trades about -0.12 of its potential returns per unit of risk. The LianChuang Electronic Technology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  980.00  in LianChuang Electronic Technology on September 28, 2024 and sell it today you would earn a total of  12.00  from holding LianChuang Electronic Technology or generate 1.22% 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.  LianChuang Electronic Technolo

Citic Guoan Wine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citic Guoan Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Citic Guoan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LianChuang Electronic

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LianChuang Electronic Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LianChuang Electronic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citic Guoan and LianChuang Electronic

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

The idea behind Citic Guoan Wine and LianChuang Electronic Technology 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.