Correlation Between Shinhan Financial and CITIC

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

By analyzing existing cross correlation between Shinhan Financial Group and CITIC Limited, you can compare the effects of market volatilities on Shinhan Financial and CITIC 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 Shinhan Financial with a short position of CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shinhan Financial and CITIC.

Diversification Opportunities for Shinhan Financial and CITIC

-0.25

Correlation Coefficient

Shinhan Financial  CITIC

Very good diversification

The 3 months correlation between Shinhan and CITIC is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and CITIC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Limited and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Limited has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and CITIC go up and down completely randomly.

Pair Corralation between Shinhan Financial and CITIC

Considering the 90-day investment horizon Shinhan Financial Group is expected to under-perform the CITIC. But the stock apears to be less risky and, when comparing its historical volatility, Shinhan Financial Group is 1.15 times less risky than CITIC. The stock trades about -0.07 of its potential returns per unit of risk. The CITIC Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  92.00  in CITIC Limited on September 12, 2024 and sell it today you would earn a total of  18.00  from holding CITIC Limited or generate 19.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Shinhan Financial Group  vs.  CITIC Limited

Shinhan Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CITIC Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shinhan Financial and CITIC

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

The idea behind Shinhan Financial Group and CITIC Limited 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.