Correlation Between Lumen Technologies and PCCW

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

By analyzing existing cross correlation between Lumen Technologies and PCCW Limited, you can compare the effects of market volatilities on Lumen Technologies and PCCW 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 Lumen Technologies with a short position of PCCW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumen Technologies and PCCW.

Diversification Opportunities for Lumen Technologies and PCCW

-0.18

Correlation Coefficient

Lumen Technologies  PCCW

Good diversification

The 3 months correlation between Lumen and PCCW is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Lumen Technologies and PCCW Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCCW Limited and Lumen Technologies 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 Lumen Technologies are associated (or correlated) with PCCW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCCW Limited has no effect on the direction of Lumen Technologies i.e., Lumen Technologies and PCCW go up and down completely randomly.

Pair Corralation between Lumen Technologies and PCCW

Given the investment horizon of 90 days Lumen Technologies is expected to generate 2.51 times more return on investment than PCCW. However, Lumen Technologies is 2.51 times more volatile than PCCW Limited. It trades about 0.11 of its potential returns per unit of risk. PCCW Limited is currently generating about 0.06 per unit of risk. If you would invest  267.00  in Lumen Technologies on September 28, 2024 and sell it today you would earn a total of  300.00  from holding Lumen Technologies or generate 112.36% return on investment over 90 days.

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

Lumen Technologies  vs.  PCCW Limited

Lumen Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lumen Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

PCCW Limited

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PCCW Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, PCCW reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lumen Technologies and PCCW

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

The idea behind Lumen Technologies and PCCW Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.