Correlation Between China Communications and UniCredit SpA

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

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

Diversification Opportunities for China Communications and UniCredit SpA

0.64

Correlation Coefficient

China Communications  UniCredit SpA

Poor diversification

The 3 months correlation between China and UniCredit is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and UniCredit SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UniCredit SpA and China 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 China Communications Services are associated (or correlated) with UniCredit SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UniCredit SpA has no effect on the direction of China Communications i.e., China Communications and UniCredit SpA go up and down completely randomly.

Pair Corralation between China Communications and UniCredit SpA

Assuming the 90 days horizon China Communications is expected to generate 4.08 times less return on investment than UniCredit SpA. In addition to that, China Communications is 1.91 times more volatile than UniCredit SpA. It trades about 0.04 of its total potential returns per unit of risk. UniCredit SpA is currently generating about 0.33 per unit of volatility. If you would invest  3,774  in UniCredit SpA on December 22, 2024 and sell it today you would earn a total of  1,726  from holding UniCredit SpA or generate 45.73% return on investment over 90 days.

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

China Communications Services  vs.  UniCredit SpA

China Communications

Risk-Adjusted Performance

Insignificant

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

UniCredit SpA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in UniCredit SpA are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, UniCredit SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Communications and UniCredit SpA

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

The idea behind China Communications Services and UniCredit SpA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.