Correlation Between China Communications and T Mobile

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

Diversification Opportunities for China Communications and T Mobile

0.69

Correlation Coefficient

China Communications  T Mobile

Poor diversification

The 3 months correlation between China and TM5 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and T Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Mobile 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 T Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Mobile has no effect on the direction of China Communications i.e., China Communications and T Mobile go up and down completely randomly.

Pair Corralation between China Communications and T Mobile

Assuming the 90 days horizon China Communications Services is expected to under-perform the T Mobile. In addition to that, China Communications is 1.75 times more volatile than T Mobile. It trades about -0.01 of its total potential returns per unit of risk. T Mobile is currently generating about 0.11 per unit of volatility. If you would invest  21,416  in T Mobile on December 30, 2024 and sell it today you would earn a total of  3,039  from holding T Mobile or generate 14.19% 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.  T Mobile

China Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Communications Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

T Mobile

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in T Mobile are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, T Mobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Communications and T Mobile

The main advantage of trading using opposite China Communications and T Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Communications position performs unexpectedly, T Mobile 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 T Mobile will offset losses from the drop in T Mobile's long position.

The idea behind China Communications Services and T Mobile 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..