Correlation Between Eastroc Beverage and China Mobile

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

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

Diversification Opportunities for Eastroc Beverage and China Mobile

0.64

Correlation Coefficient

Eastroc Beverage  China Mobile

Poor diversification

The 3 months correlation between Eastroc and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Eastroc Beverage Group 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 Eastroc Beverage 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 Eastroc Beverage Group 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 Eastroc Beverage i.e., Eastroc Beverage and China Mobile go up and down completely randomly.

Pair Corralation between Eastroc Beverage and China Mobile

Assuming the 90 days trading horizon Eastroc Beverage Group is expected to generate 2.14 times more return on investment than China Mobile. However, Eastroc Beverage is 2.14 times more volatile than China Mobile Limited. It trades about 0.35 of its potential returns per unit of risk. China Mobile Limited is currently generating about 0.29 per unit of risk. If you would invest  21,580  in Eastroc Beverage Group on September 19, 2024 and sell it today you would earn a total of  3,620  from holding Eastroc Beverage Group or generate 16.77% return on investment over 90 days.

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

Eastroc Beverage Group  vs.  China Mobile Limited

Eastroc Beverage

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eastroc Beverage Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastroc Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

China Mobile Limited

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Mobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastroc Beverage and China Mobile

The main advantage of trading using opposite Eastroc Beverage and China Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastroc Beverage 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 Eastroc Beverage Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.