Correlation Between Gome Telecom and Mengtian Home

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

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

Diversification Opportunities for Gome Telecom and Mengtian Home

-0.14

Correlation Coefficient

Gome Telecom  Mengtian Home

Good diversification

The 3 months correlation between Gome and Mengtian is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Gome Telecom Equipment and Mengtian Home Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mengtian Home Group and Gome Telecom 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 Gome Telecom Equipment are associated (or correlated) with Mengtian Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mengtian Home Group has no effect on the direction of Gome Telecom i.e., Gome Telecom and Mengtian Home go up and down completely randomly.

Pair Corralation between Gome Telecom and Mengtian Home

Assuming the 90 days trading horizon Gome Telecom Equipment is expected to under-perform the Mengtian Home. But the stock apears to be less risky and, when comparing its historical volatility, Gome Telecom Equipment is 1.06 times less risky than Mengtian Home. The stock trades about -0.39 of its potential returns per unit of risk. The Mengtian Home Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,034  in Mengtian Home Group on October 6, 2024 and sell it today you would earn a total of  85.00  from holding Mengtian Home Group or generate 8.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

Gome Telecom Equipment  vs.  Mengtian Home Group

Gome Telecom Equipment

Risk-Adjusted Performance

0 of 100

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Mengtian Home Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Mengtian Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gome Telecom and Mengtian Home

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

The idea behind Gome Telecom Equipment and Mengtian Home Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.