Correlation Between Liaoning Chengda and China Telecom

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

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

Diversification Opportunities for Liaoning Chengda and China Telecom

0.79

Correlation Coefficient

Liaoning Chengda  China Telecom

Poor diversification

The 3 months correlation between Liaoning and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Chengda Biotechnology and China Telecom Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Telecom Corp and Liaoning Chengda 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 Liaoning Chengda Biotechnology are associated (or correlated) with China Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Telecom Corp has no effect on the direction of Liaoning Chengda i.e., Liaoning Chengda and China Telecom go up and down completely randomly.

Pair Corralation between Liaoning Chengda and China Telecom

Assuming the 90 days trading horizon Liaoning Chengda is expected to generate 2.07 times less return on investment than China Telecom. But when comparing it to its historical volatility, Liaoning Chengda Biotechnology is 1.22 times less risky than China Telecom. It trades about 0.03 of its potential returns per unit of risk. China Telecom Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  721.00  in China Telecom Corp on December 25, 2024 and sell it today you would earn a total of  40.00  from holding China Telecom Corp or generate 5.55% return on investment over 90 days.

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

Liaoning Chengda Biotechnology  vs.  China Telecom Corp

Liaoning Chengda Bio

Risk-Adjusted Performance

Weak

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

China Telecom Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Telecom Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Telecom may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Liaoning Chengda and China Telecom

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

The idea behind Liaoning Chengda Biotechnology and China Telecom Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.