Correlation Between Asia Commercial and POT

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

By analyzing existing cross correlation between Asia Commercial Bank and PostTelecommunication Equipment, you can compare the effects of market volatilities on Asia Commercial and POT 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 Asia Commercial with a short position of POT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Commercial and POT.

Diversification Opportunities for Asia Commercial and POT

0.35

Correlation Coefficient

Asia Commercial  POT

Weak diversification

The 3 months correlation between Asia and POT is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Asia Commercial Bank and PostTelecommunication Equipmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PostTelecommunication and Asia Commercial 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 Asia Commercial Bank are associated (or correlated) with POT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PostTelecommunication has no effect on the direction of Asia Commercial i.e., Asia Commercial and POT go up and down completely randomly.

Pair Corralation between Asia Commercial and POT

Assuming the 90 days trading horizon Asia Commercial is expected to generate 6.83 times less return on investment than POT. But when comparing it to its historical volatility, Asia Commercial Bank is 7.12 times less risky than POT. It trades about 0.06 of its potential returns per unit of risk. PostTelecommunication Equipment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,510,000  in PostTelecommunication Equipment on December 27, 2024 and sell it today you would earn a total of  110,000  from holding PostTelecommunication Equipment or generate 7.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	70.69%
Values	Daily Returns

Asia Commercial Bank  vs.  PostTelecommunication Equipmen

Asia Commercial Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Commercial Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Asia Commercial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

PostTelecommunication

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PostTelecommunication Equipment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, POT displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asia Commercial and POT

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

The idea behind Asia Commercial Bank and PostTelecommunication 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.