Correlation Between Jilin Jlu and China Telecom

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

By analyzing existing cross correlation between Jilin Jlu Communication and China Telecom Corp, you can compare the effects of market volatilities on Jilin Jlu and China 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 Jilin Jlu with a short position of China Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jilin Jlu and China Telecom.

Diversification Opportunities for Jilin Jlu and China Telecom

0.88

Correlation Coefficient

Jilin Jlu  China Telecom

Very poor diversification

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

Pair Corralation between Jilin Jlu and China Telecom

Assuming the 90 days trading horizon Jilin Jlu Communication is expected to generate 1.98 times more return on investment than China Telecom. However, Jilin Jlu is 1.98 times more volatile than China Telecom Corp. It trades about 0.13 of its potential returns per unit of risk. China Telecom Corp is currently generating about 0.15 per unit of risk. If you would invest  708.00  in Jilin Jlu Communication on September 19, 2024 and sell it today you would earn a total of  220.00  from holding Jilin Jlu Communication or generate 31.07% return on investment over 90 days.

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

Jilin Jlu Communication  vs.  China Telecom Corp

Jilin Jlu Communication

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Jlu Communication are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jilin Jlu sustained solid returns over the last few months and may actually be approaching a breakup point.

China Telecom Corp

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Jilin Jlu and China Telecom

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

The idea behind Jilin Jlu Communication and China Telecom Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.