Correlation Between China Citic and Bank of Nanjing

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

Diversification Opportunities for China Citic and Bank of Nanjing

0.68

Correlation Coefficient

China Citic  Bank of Nanjing

Poor diversification

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

Pair Corralation between China Citic and Bank of Nanjing

Assuming the 90 days trading horizon China Citic Bank is expected to generate 1.73 times more return on investment than Bank of Nanjing. However, China Citic is 1.73 times more volatile than Bank of Nanjing. It trades about 0.05 of its potential returns per unit of risk. Bank of Nanjing is currently generating about 0.04 per unit of risk. If you would invest  663.00  in China Citic Bank on September 24, 2024 and sell it today you would earn a total of  9.00  from holding China Citic Bank or generate 1.36% 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.  Bank of Nanjing

China Citic Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of Nanjing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Nanjing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Nanjing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Citic and Bank of Nanjing

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

The idea behind China Citic Bank and Bank of Nanjing 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.