Correlation Between Highlight Communications and China Communications

Can any of the company-specific risk be diversified away by investing in both Highlight Communications and China 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 Highlight Communications and China Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Highlight Communications AG and China Communications Services, you can compare the effects of market volatilities on Highlight Communications and China 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 Highlight Communications with a short position of China Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highlight Communications and China Communications.

Diversification Opportunities for Highlight Communications and China Communications

0.13

Correlation Coefficient

Highlight Communications  China Communications

Average diversification

The 3 months correlation between Highlight and China is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Highlight Communications AG and China Communications Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Communications and Highlight 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 Highlight Communications AG are associated (or correlated) with China Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Communications has no effect on the direction of Highlight Communications i.e., Highlight Communications and China Communications go up and down completely randomly.

Pair Corralation between Highlight Communications and China Communications

Assuming the 90 days trading horizon Highlight Communications AG is expected to under-perform the China Communications. In addition to that, Highlight Communications is 2.07 times more volatile than China Communications Services. It trades about -0.04 of its total potential returns per unit of risk. China Communications Services is currently generating about 0.31 per unit of volatility. If you would invest  51.00  in China Communications Services on October 5, 2024 and sell it today you would earn a total of  4.00  from holding China Communications Services or generate 7.84% return on investment over 90 days.

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

Highlight Communications AG  vs.  China Communications Services

Highlight Communications

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Highlight Communications AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile technical and fundamental indicators, Highlight Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Communications

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days China Communications Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, China Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Highlight Communications and China Communications

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

The idea behind Highlight Communications AG and China Communications Services 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.