Correlation Between China Enterprise and China Mobile

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

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

Diversification Opportunities for China Enterprise and China Mobile

-0.44

Correlation Coefficient

China Enterprise  China Mobile

Very good diversification

The 3 months correlation between China and China is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding China Enterprise Co and China Mobile Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mobile Limited and China Enterprise 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 Enterprise Co are associated (or correlated) with China Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mobile Limited has no effect on the direction of China Enterprise i.e., China Enterprise and China Mobile go up and down completely randomly.

Pair Corralation between China Enterprise and China Mobile

Assuming the 90 days trading horizon China Enterprise Co is expected to under-perform the China Mobile. But the stock apears to be less risky and, when comparing its historical volatility, China Enterprise Co is 1.03 times less risky than China Mobile. The stock trades about -0.7 of its potential returns per unit of risk. The China Mobile Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,879  in China Mobile Limited on October 14, 2024 and sell it today you would earn a total of  51.00  from holding China Mobile Limited or generate 0.47% return on investment over 90 days.

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

China Enterprise Co  vs.  China Mobile Limited

China Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Enterprise Co 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.

China Mobile Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Mobile Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Mobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Enterprise and China Mobile

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

The idea behind China Enterprise Co and China Mobile Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.