Correlation Between China Mobile and Far EasTone

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

By analyzing existing cross correlation between China Mobile and Far EasTone Telecommunications, you can compare the effects of market volatilities on China Mobile and Far EasTone 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 Mobile with a short position of Far EasTone. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Mobile and Far EasTone.

Diversification Opportunities for China Mobile and Far EasTone

-0.31

Correlation Coefficient

China Mobile  Far EasTone

Very good diversification

The 3 months correlation between China and Far is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Mobile and Far EasTone Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far EasTone Telecomm and China Mobile 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 Mobile are associated (or correlated) with Far EasTone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far EasTone Telecomm has no effect on the direction of China Mobile i.e., China Mobile and Far EasTone go up and down completely randomly.

Pair Corralation between China Mobile and Far EasTone

Assuming the 90 days trading horizon China Mobile is expected to generate 1.15 times more return on investment than Far EasTone. However, China Mobile is 1.15 times more volatile than Far EasTone Telecommunications. It trades about 0.06 of its potential returns per unit of risk. Far EasTone Telecommunications is currently generating about 0.04 per unit of risk. If you would invest  1,330  in China Mobile on December 22, 2024 and sell it today you would earn a total of  44.00  from holding China Mobile or generate 3.31% return on investment over 90 days.

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

China Mobile  vs.  Far EasTone Telecommunications

China Mobile

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, China Mobile is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Far EasTone Telecomm

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Far EasTone Telecommunications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Far EasTone is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Mobile and Far EasTone

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

The idea behind China Mobile and Far EasTone Telecommunications 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.