Correlation Between China Tower and Airtel Africa

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

By analyzing existing cross correlation between China Tower and Airtel Africa Plc, you can compare the effects of market volatilities on China Tower and Airtel Africa 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 China Tower with a short position of Airtel Africa. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Tower and Airtel Africa.

Diversification Opportunities for China Tower and Airtel Africa

-0.1

Correlation Coefficient

China Tower  Airtel Africa

Good diversification

The 3 months correlation between China and Airtel is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding China Tower and Airtel Africa Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airtel Africa Plc and China Tower 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 China Tower are associated (or correlated) with Airtel Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airtel Africa Plc has no effect on the direction of China Tower i.e., China Tower and Airtel Africa go up and down completely randomly.

Pair Corralation between China Tower and Airtel Africa

Assuming the 90 days horizon China Tower is expected to generate 2.0 times more return on investment than Airtel Africa. However, China Tower is 2.0 times more volatile than Airtel Africa Plc. It trades about 0.1 of its potential returns per unit of risk. Airtel Africa Plc is currently generating about 0.0 per unit of risk. If you would invest  5.49  in China Tower on October 7, 2024 and sell it today you would earn a total of  10.51  from holding China Tower or generate 191.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	81.85%
Values	Daily Returns

China Tower  vs.  Airtel Africa Plc

China Tower

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Tower are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Tower reported solid returns over the last few months and may actually be approaching a breakup point.

Airtel Africa Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Airtel Africa Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Tower and Airtel Africa

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

The idea behind China Tower and Airtel Africa Plc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.