Correlation Between Eastern Communications and Gome Telecom

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

By analyzing existing cross correlation between Eastern Communications Co and Gome Telecom Equipment, you can compare the effects of market volatilities on Eastern Communications and Gome 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 Eastern Communications with a short position of Gome Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Communications and Gome Telecom.

Diversification Opportunities for Eastern Communications and Gome Telecom

0.45

Correlation Coefficient

Eastern Communications  Gome Telecom

Very weak diversification

The 3 months correlation between Eastern and Gome is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Communications Co and Gome Telecom Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gome Telecom Equipment and Eastern Communications 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 Eastern Communications Co are associated (or correlated) with Gome Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gome Telecom Equipment has no effect on the direction of Eastern Communications i.e., Eastern Communications and Gome Telecom go up and down completely randomly.

Pair Corralation between Eastern Communications and Gome Telecom

Assuming the 90 days trading horizon Eastern Communications Co is expected to generate 0.81 times more return on investment than Gome Telecom. However, Eastern Communications Co is 1.23 times less risky than Gome Telecom. It trades about 0.22 of its potential returns per unit of risk. Gome Telecom Equipment is currently generating about 0.04 per unit of risk. If you would invest  31.00  in Eastern Communications Co on September 14, 2024 and sell it today you would earn a total of  12.00  from holding Eastern Communications Co or generate 38.71% return on investment over 90 days.

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

Eastern Communications Co  vs.  Gome Telecom Equipment

Eastern Communications

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Communications Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Gome Telecom Equipment

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gome Telecom Equipment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gome Telecom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eastern Communications and Gome Telecom

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

The idea behind Eastern Communications Co and Gome Telecom Equipment 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.