Correlation Between Hubei Huaqiang and China Mobile

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

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

Diversification Opportunities for Hubei Huaqiang and China Mobile

-0.05

Correlation Coefficient

Hubei Huaqiang  China Mobile

Good diversification

The 3 months correlation between Hubei and China is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Huaqiang High Tech 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 Hubei Huaqiang 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 Hubei Huaqiang High Tech 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 Hubei Huaqiang i.e., Hubei Huaqiang and China Mobile go up and down completely randomly.

Pair Corralation between Hubei Huaqiang and China Mobile

Assuming the 90 days trading horizon Hubei Huaqiang High Tech is expected to generate 2.36 times more return on investment than China Mobile. However, Hubei Huaqiang is 2.36 times more volatile than China Mobile Limited. It trades about 0.03 of its potential returns per unit of risk. China Mobile Limited is currently generating about 0.02 per unit of risk. If you would invest  1,701  in Hubei Huaqiang High Tech on December 1, 2024 and sell it today you would earn a total of  39.00  from holding Hubei Huaqiang High Tech or generate 2.29% return on investment over 90 days.

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

Hubei Huaqiang High Tech  vs.  China Mobile Limited

Hubei Huaqiang High

Risk-Adjusted Performance

Weak

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

China Mobile Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Mobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hubei Huaqiang and China Mobile

The main advantage of trading using opposite Hubei Huaqiang and China Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hubei Huaqiang 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 Hubei Huaqiang High Tech 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.