Correlation Between Chongqing Machinery and CITIC Telecom

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

By analyzing existing cross correlation between Chongqing Machinery Electric and CITIC Telecom International, you can compare the effects of market volatilities on Chongqing Machinery and CITIC 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 Chongqing Machinery with a short position of CITIC Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Machinery and CITIC Telecom.

Diversification Opportunities for Chongqing Machinery and CITIC Telecom

0.65

Correlation Coefficient

Chongqing Machinery  CITIC Telecom

Poor diversification

The 3 months correlation between Chongqing and CITIC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and CITIC Telecom International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Telecom Intern and Chongqing Machinery 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 Chongqing Machinery Electric are associated (or correlated) with CITIC Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Telecom Intern has no effect on the direction of Chongqing Machinery i.e., Chongqing Machinery and CITIC Telecom go up and down completely randomly.

Pair Corralation between Chongqing Machinery and CITIC Telecom

Assuming the 90 days horizon Chongqing Machinery is expected to generate 1.48 times less return on investment than CITIC Telecom. But when comparing it to its historical volatility, Chongqing Machinery Electric is 1.32 times less risky than CITIC Telecom. It trades about 0.07 of its potential returns per unit of risk. CITIC Telecom International is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3.89  in CITIC Telecom International on September 16, 2024 and sell it today you would earn a total of  23.11  from holding CITIC Telecom International or generate 594.09% return on investment over 90 days.

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

Chongqing Machinery Electric  vs.  CITIC Telecom International

Chongqing Machinery

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Machinery Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chongqing Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

CITIC Telecom Intern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Telecom International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CITIC Telecom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chongqing Machinery and CITIC Telecom

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

The idea behind Chongqing Machinery Electric and CITIC Telecom International 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.