Correlation Between China State and BlueFocus Communication

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

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

Diversification Opportunities for China State and BlueFocus Communication

0.44

Correlation Coefficient

China State  BlueFocus Communication

Very weak diversification

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

Pair Corralation between China State and BlueFocus Communication

Assuming the 90 days trading horizon China State Construction is expected to generate 0.22 times more return on investment than BlueFocus Communication. However, China State Construction is 4.46 times less risky than BlueFocus Communication. It trades about -0.12 of its potential returns per unit of risk. BlueFocus Communication Group is currently generating about -0.04 per unit of risk. If you would invest  598.00  in China State Construction on November 29, 2024 and sell it today you would lose (45.00) from holding China State Construction or give up 7.53% of portfolio value over 90 days.

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

China State Construction  vs.  BlueFocus Communication Group

China State Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days China State Construction 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.

BlueFocus Communication

Risk-Adjusted Performance

Very Weak

Over the last 90 days BlueFocus Communication Group 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.

Pair Trading with China State and BlueFocus Communication

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

The idea behind China State Construction and BlueFocus Communication 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.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.