Correlation Between China Communications and Japan Asia

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

Diversification Opportunities for China Communications and Japan Asia

-0.34

Correlation Coefficient

China Communications  Japan Asia

Very good diversification

The 3 months correlation between China and Japan is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and Japan Asia Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Asia Investment 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 Japan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Asia Investment has no effect on the direction of China Communications i.e., China Communications and Japan Asia go up and down completely randomly.

Pair Corralation between China Communications and Japan Asia

Assuming the 90 days horizon China Communications Services is expected to under-perform the Japan Asia. In addition to that, China Communications is 1.04 times more volatile than Japan Asia Investment. It trades about -0.07 of its total potential returns per unit of risk. Japan Asia Investment is currently generating about -0.06 per unit of volatility. If you would invest  128.00  in Japan Asia Investment on October 26, 2024 and sell it today you would lose (2.00) from holding Japan Asia Investment or give up 1.56% of portfolio value over 90 days.

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

China Communications Services  vs.  Japan Asia Investment

China Communications

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 5 (%) 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 February 2025.

Japan Asia Investment

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Asia Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Communications and Japan Asia

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

The idea behind China Communications Services and Japan Asia Investment 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.