Correlation Between China Mobile and Shanghai Pudong

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Can any of the company-specific risk be diversified away by investing in both China Mobile and Shanghai Pudong 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 Shanghai Pudong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Mobile Limited and Shanghai Pudong Development, you can compare the effects of market volatilities on China Mobile and Shanghai Pudong 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 Shanghai Pudong. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Mobile and Shanghai Pudong.

Diversification Opportunities for China Mobile and Shanghai Pudong

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between China and Shanghai is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding China Mobile Limited and Shanghai Pudong Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pudong Deve 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 Limited are associated (or correlated) with Shanghai Pudong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pudong Deve has no effect on the direction of China Mobile i.e., China Mobile and Shanghai Pudong go up and down completely randomly.

Pair Corralation between China Mobile and Shanghai Pudong

Assuming the 90 days trading horizon China Mobile Limited is expected to generate 1.1 times more return on investment than Shanghai Pudong. However, China Mobile is 1.1 times more volatile than Shanghai Pudong Development. It trades about 0.3 of its potential returns per unit of risk. Shanghai Pudong Development is currently generating about 0.05 per unit of risk. If you would invest  10,340  in China Mobile Limited on September 23, 2024 and sell it today you would earn a total of  800.00  from holding China Mobile Limited or generate 7.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

China Mobile Limited  vs.  Shanghai Pudong Development

 Performance 
       Timeline  
China Mobile Limited 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Mobile may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Shanghai Pudong Deve 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pudong Development are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Pudong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Mobile and Shanghai Pudong Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Mobile and Shanghai Pudong

The main advantage of trading using opposite China Mobile and Shanghai Pudong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Mobile position performs unexpectedly, Shanghai Pudong 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 Shanghai Pudong will offset losses from the drop in Shanghai Pudong's long position.
The idea behind China Mobile Limited and Shanghai Pudong Development 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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