Correlation Between Harbin Air and CITIC Guoan

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

By analyzing existing cross correlation between Harbin Air Conditioning and CITIC Guoan Information, you can compare the effects of market volatilities on Harbin Air and CITIC Guoan 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 Harbin Air with a short position of CITIC Guoan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harbin Air and CITIC Guoan.

Diversification Opportunities for Harbin Air and CITIC Guoan

0.89

Correlation Coefficient

Harbin Air  CITIC Guoan

Very poor diversification

The 3 months correlation between Harbin and CITIC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Air Conditioning and CITIC Guoan Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Guoan Information and Harbin Air 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 Harbin Air Conditioning are associated (or correlated) with CITIC Guoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Guoan Information has no effect on the direction of Harbin Air i.e., Harbin Air and CITIC Guoan go up and down completely randomly.

Pair Corralation between Harbin Air and CITIC Guoan

Assuming the 90 days trading horizon Harbin Air Conditioning is expected to under-perform the CITIC Guoan. In addition to that, Harbin Air is 1.13 times more volatile than CITIC Guoan Information. It trades about -0.17 of its total potential returns per unit of risk. CITIC Guoan Information is currently generating about -0.1 per unit of volatility. If you would invest  342.00  in CITIC Guoan Information on September 28, 2024 and sell it today you would lose (23.00) from holding CITIC Guoan Information or give up 6.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Harbin Air Conditioning  vs.  CITIC Guoan Information

Harbin Air Conditioning

Risk-Adjusted Performance

0 of 100

Very Weak

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

CITIC Guoan Information

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Guoan Information are ranked lower than 5 (%) 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.

Pair Trading with Harbin Air and CITIC Guoan

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

The idea behind Harbin Air Conditioning and CITIC Guoan Information 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.