Correlation Between China CITIC and China Everbright

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

Diversification Opportunities for China CITIC and China Everbright

-0.51

Correlation Coefficient

China CITIC  China Everbright

Excellent diversification

The 3 months correlation between China and China is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding China CITIC Bank and China Everbright Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright Bank 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 China Everbright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Everbright Bank has no effect on the direction of China CITIC i.e., China CITIC and China Everbright go up and down completely randomly.

Pair Corralation between China CITIC and China Everbright

If you would invest  55.00  in China CITIC Bank on February 2, 2024 and sell it today you would earn a total of  4.00  from holding China CITIC Bank or generate 7.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

China CITIC Bank  vs.  China Everbright Bank

China CITIC Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China CITIC Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, China CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

China Everbright Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Everbright Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, China Everbright is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China CITIC and China Everbright

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

The idea behind China CITIC Bank and China Everbright Bank 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.