Correlation Between China Citic and Yunnan Chuangxin

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

By analyzing existing cross correlation between China Citic Bank and Yunnan Chuangxin New, you can compare the effects of market volatilities on China Citic and Yunnan Chuangxin 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 Citic with a short position of Yunnan Chuangxin. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Citic and Yunnan Chuangxin.

Diversification Opportunities for China Citic and Yunnan Chuangxin

0.68

Correlation Coefficient

China Citic  Yunnan Chuangxin

Poor diversification

The 3 months correlation between China and Yunnan is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Yunnan Chuangxin New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yunnan Chuangxin New and China Citic 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 Citic Bank are associated (or correlated) with Yunnan Chuangxin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yunnan Chuangxin New has no effect on the direction of China Citic i.e., China Citic and Yunnan Chuangxin go up and down completely randomly.

Pair Corralation between China Citic and Yunnan Chuangxin

Assuming the 90 days trading horizon China Citic is expected to generate 2.95 times less return on investment than Yunnan Chuangxin. But when comparing it to its historical volatility, China Citic Bank is 1.89 times less risky than Yunnan Chuangxin. It trades about 0.1 of its potential returns per unit of risk. Yunnan Chuangxin New is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,447  in Yunnan Chuangxin New on September 23, 2024 and sell it today you would earn a total of  930.00  from holding Yunnan Chuangxin New or generate 38.01% return on investment over 90 days.

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

China Citic Bank  vs.  Yunnan Chuangxin New

China Citic Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic sustained solid returns over the last few months and may actually be approaching a breakup point.

Yunnan Chuangxin New

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with China Citic and Yunnan Chuangxin

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

The idea behind China Citic Bank and Yunnan Chuangxin New 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.