Correlation Between China Communications and Beijing Tong

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

Diversification Opportunities for China Communications and Beijing Tong

0.77

Correlation Coefficient

China Communications  Beijing Tong

Poor diversification

The 3 months correlation between China and Beijing is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and Beijing Tong Ren in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Tong Ren 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 Beijing Tong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Tong Ren has no effect on the direction of China Communications i.e., China Communications and Beijing Tong go up and down completely randomly.

Pair Corralation between China Communications and Beijing Tong

Assuming the 90 days horizon China Communications Services is expected to under-perform the Beijing Tong. But the stock apears to be less risky and, when comparing its historical volatility, China Communications Services is 1.23 times less risky than Beijing Tong. The stock trades about -0.02 of its potential returns per unit of risk. The Beijing Tong Ren is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  102.00  in Beijing Tong Ren on September 13, 2024 and sell it today you would lose (2.00) from holding Beijing Tong Ren or give up 1.96% of portfolio value over 90 days.

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

China Communications Services  vs.  Beijing Tong Ren

China Communications

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Beijing Tong Ren

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with China Communications and Beijing Tong

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

The idea behind China Communications Services and Beijing Tong Ren 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.