Correlation Between Citic and RCABS
Can any of the company-specific risk be diversified away by investing in both Citic and RCABS 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 Citic and RCABS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Citic Ltd ADR and RCABS Inc, you can compare the effects of market volatilities on Citic and RCABS 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 Citic with a short position of RCABS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic and RCABS.
Diversification Opportunities for Citic and RCABS
Excellent diversification
The 3 months correlation between Citic and RCABS is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Citic Ltd ADR and RCABS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCABS Inc and 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 Citic Ltd ADR are associated (or correlated) with RCABS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCABS Inc has no effect on the direction of Citic i.e., Citic and RCABS go up and down completely randomly.
Pair Corralation between Citic and RCABS
Assuming the 90 days horizon Citic Ltd ADR is expected to generate 0.34 times more return on investment than RCABS. However, Citic Ltd ADR is 2.93 times less risky than RCABS. It trades about -0.01 of its potential returns per unit of risk. RCABS Inc is currently generating about -0.08 per unit of risk. If you would invest 615.00 in Citic Ltd ADR on August 31, 2024 and sell it today you would lose (8.00) from holding Citic Ltd ADR or give up 1.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Citic Ltd ADR vs. RCABS Inc
Performance |
| Timeline |
| Citic Ltd ADR |
| RCABS Inc |
Citic and RCABS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Citic and RCABS
The main advantage of trading using opposite Citic and RCABS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citic position performs unexpectedly, RCABS 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 RCABS will offset losses from the drop in RCABS's long position.The idea behind Citic Ltd ADR and RCABS Inc 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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