Correlation Between PCCW and Nippon Telegraph

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

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

Diversification Opportunities for PCCW and Nippon Telegraph

0.23

Correlation Coefficient

PCCW  Nippon Telegraph

Modest diversification

The 3 months correlation between PCCW and Nippon is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding PCCW Limited and Nippon Telegraph Telephone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Telegraph Tel and PCCW 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 PCCW Limited are associated (or correlated) with Nippon Telegraph. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Telegraph Tel has no effect on the direction of PCCW i.e., PCCW and Nippon Telegraph go up and down completely randomly.

Pair Corralation between PCCW and Nippon Telegraph

Assuming the 90 days horizon PCCW Limited is expected to generate 0.96 times more return on investment than Nippon Telegraph. However, PCCW Limited is 1.04 times less risky than Nippon Telegraph. It trades about 0.06 of its potential returns per unit of risk. Nippon Telegraph Telephone is currently generating about 0.02 per unit of risk. If you would invest  50.00  in PCCW Limited on September 28, 2024 and sell it today you would earn a total of  9.00  from holding PCCW Limited or generate 18.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.43%
Values	Daily Returns

PCCW Limited  vs.  Nippon Telegraph Telephone

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.

Nippon Telegraph Tel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PCCW and Nippon Telegraph

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

The idea behind PCCW Limited and Nippon Telegraph Telephone 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.