Correlation Between Citic Guoan and WuXi AppTec

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

Diversification Opportunities for Citic Guoan and WuXi AppTec

0.83

Correlation Coefficient

Citic Guoan  WuXi AppTec

Very poor diversification

The 3 months correlation between Citic and WuXi is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and WuXi AppTec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi AppTec 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 WuXi AppTec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi AppTec has no effect on the direction of Citic Guoan i.e., Citic Guoan and WuXi AppTec go up and down completely randomly.

Pair Corralation between Citic Guoan and WuXi AppTec

Assuming the 90 days trading horizon Citic Guoan is expected to generate 1.31 times less return on investment than WuXi AppTec. But when comparing it to its historical volatility, Citic Guoan Wine is 1.11 times less risky than WuXi AppTec. It trades about 0.13 of its potential returns per unit of risk. WuXi AppTec Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,250  in WuXi AppTec Co on September 24, 2024 and sell it today you would earn a total of  1,329  from holding WuXi AppTec Co or generate 31.27% 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.  WuXi AppTec Co

Citic Guoan Wine

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Guoan Wine are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Citic Guoan sustained solid returns over the last few months and may actually be approaching a breakup point.

WuXi AppTec

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WuXi AppTec Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, WuXi AppTec sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citic Guoan and WuXi AppTec

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

The idea behind Citic Guoan Wine and WuXi AppTec 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.