Correlation Between China Communications and SFC Energy

Can any of the company-specific risk be diversified away by investing in both China Communications and SFC Energy 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 SFC Energy 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 SFC Energy AG, you can compare the effects of market volatilities on China Communications and SFC Energy 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 SFC Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Communications and SFC Energy.

Diversification Opportunities for China Communications and SFC Energy

0.07

Correlation Coefficient

China Communications  SFC Energy

Significant diversification

The 3 months correlation between China and SFC is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and SFC Energy AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFC Energy AG 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 SFC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFC Energy AG has no effect on the direction of China Communications i.e., China Communications and SFC Energy go up and down completely randomly.

Pair Corralation between China Communications and SFC Energy

Assuming the 90 days horizon China Communications is expected to generate 3.16 times less return on investment than SFC Energy. In addition to that, China Communications is 1.06 times more volatile than SFC Energy AG. It trades about 0.06 of its total potential returns per unit of risk. SFC Energy AG is currently generating about 0.2 per unit of volatility. If you would invest  1,636  in SFC Energy AG on December 20, 2024 and sell it today you would earn a total of  744.00  from holding SFC Energy AG or generate 45.48% return on investment over 90 days.

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

China Communications Services  vs.  SFC Energy AG

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 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, China Communications reported solid returns over the last few months and may actually be approaching a breakup point.

SFC Energy AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SFC Energy AG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, SFC Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Communications and SFC Energy

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

The idea behind China Communications Services and SFC Energy AG 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.