Correlation Between China Communications and Cogent Communications

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

Diversification Opportunities for China Communications and Cogent Communications

0.11

Correlation Coefficient

China Communications  Cogent Communications

Average diversification

The 3 months correlation between China and Cogent is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications 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 Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of China Communications i.e., China Communications and Cogent Communications go up and down completely randomly.

Pair Corralation between China Communications and Cogent Communications

Assuming the 90 days horizon China Communications Services is expected to generate 1.77 times more return on investment than Cogent Communications. However, China Communications is 1.77 times more volatile than Cogent Communications Holdings. It trades about 0.02 of its potential returns per unit of risk. Cogent Communications Holdings is currently generating about -0.09 per unit of risk. If you would invest  54.00  in China Communications Services on December 26, 2024 and sell it today you would earn a total of  0.00  from holding China Communications Services or generate 0.0% 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.  Cogent Communications Holdings

China Communications

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cogent Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with China Communications and Cogent Communications

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

The idea behind China Communications Services and Cogent Communications Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.