Correlation Between China State and CITIC Guoan

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

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

Diversification Opportunities for China State and CITIC Guoan

0.65

Correlation Coefficient

China State  CITIC Guoan

Poor diversification

The 3 months correlation between China and CITIC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction 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 China State 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 China State Construction 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 China State i.e., China State and CITIC Guoan go up and down completely randomly.

Pair Corralation between China State and CITIC Guoan

Assuming the 90 days trading horizon China State is expected to generate 3.5 times less return on investment than CITIC Guoan. But when comparing it to its historical volatility, China State Construction is 1.44 times less risky than CITIC Guoan. It trades about 0.09 of its potential returns per unit of risk. CITIC Guoan Information is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  219.00  in CITIC Guoan Information on September 2, 2024 and sell it today you would earn a total of  132.00  from holding CITIC Guoan Information or generate 60.27% return on investment over 90 days.

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

China State Construction  vs.  CITIC Guoan Information

China State Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China State Construction are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China State sustained solid returns over the last few months and may actually be approaching a breakup point.

CITIC Guoan Information

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Guoan Information are ranked lower than 16 (%) 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 China State and CITIC Guoan

The main advantage of trading using opposite China State and CITIC Guoan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China State 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 China State Construction 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.