Correlation Between China Telecom and Chongqing Rural

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

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

Diversification Opportunities for China Telecom and Chongqing Rural

0.69

Correlation Coefficient

China Telecom  Chongqing Rural

Poor diversification

The 3 months correlation between China and Chongqing is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding China Telecom Corp and Chongqing Rural Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Rural Comm and China 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 China Telecom Corp are associated (or correlated) with Chongqing Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Rural Comm has no effect on the direction of China Telecom i.e., China Telecom and Chongqing Rural go up and down completely randomly.

Pair Corralation between China Telecom and Chongqing Rural

Assuming the 90 days trading horizon China Telecom Corp is expected to generate 1.49 times more return on investment than Chongqing Rural. However, China Telecom is 1.49 times more volatile than Chongqing Rural Commercial. It trades about 0.07 of its potential returns per unit of risk. Chongqing Rural Commercial is currently generating about 0.09 per unit of risk. If you would invest  387.00  in China Telecom Corp on September 20, 2024 and sell it today you would earn a total of  314.00  from holding China Telecom Corp or generate 81.14% return on investment over 90 days.

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

China Telecom Corp  vs.  Chongqing Rural Commercial

China Telecom Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Telecom Corp are ranked lower than 10 (%) 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.

Chongqing Rural Comm

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Rural Commercial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Rural sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Telecom and Chongqing Rural

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

The idea behind China Telecom Corp and Chongqing Rural Commercial 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.