Correlation Between Xinjiang Communications and Gome Telecom

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

By analyzing existing cross correlation between Xinjiang Communications Construction and Gome Telecom Equipment, you can compare the effects of market volatilities on Xinjiang Communications and Gome Telecom 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 Xinjiang Communications with a short position of Gome Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Communications and Gome Telecom.

Diversification Opportunities for Xinjiang Communications and Gome Telecom

0.88

Correlation Coefficient

Xinjiang Communications  Gome Telecom

Very poor diversification

The 3 months correlation between Xinjiang and Gome is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Communications Constr and Gome Telecom Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gome Telecom Equipment and Xinjiang Communications 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 Xinjiang Communications Construction are associated (or correlated) with Gome Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gome Telecom Equipment has no effect on the direction of Xinjiang Communications i.e., Xinjiang Communications and Gome Telecom go up and down completely randomly.

Pair Corralation between Xinjiang Communications and Gome Telecom

Assuming the 90 days trading horizon Xinjiang Communications Construction is expected to generate 0.77 times more return on investment than Gome Telecom. However, Xinjiang Communications Construction is 1.31 times less risky than Gome Telecom. It trades about -0.06 of its potential returns per unit of risk. Gome Telecom Equipment is currently generating about -0.66 per unit of risk. If you would invest  1,262  in Xinjiang Communications Construction on November 20, 2024 and sell it today you would lose (99.00) from holding Xinjiang Communications Construction or give up 7.84% of portfolio value over 90 days.

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

Xinjiang Communications Constr  vs.  Gome Telecom Equipment

Xinjiang Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xinjiang Communications Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Gome Telecom Equipment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gome Telecom Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Xinjiang Communications and Gome Telecom

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

The idea behind Xinjiang Communications Construction and Gome Telecom Equipment 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.