Correlation Between PCCW and Orange SA

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

By analyzing existing cross correlation between PCCW Limited and Orange SA ADR, you can compare the effects of market volatilities on PCCW and Orange SA 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 Orange SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of PCCW and Orange SA.

Diversification Opportunities for PCCW and Orange SA

0.31

Correlation Coefficient

PCCW  Orange SA

Weak diversification

The 3 months correlation between PCCW and Orange is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding PCCW Limited and Orange SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange SA ADR 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 Orange SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orange SA ADR has no effect on the direction of PCCW i.e., PCCW and Orange SA go up and down completely randomly.

Pair Corralation between PCCW and Orange SA

Assuming the 90 days horizon PCCW Limited is expected to generate 4.38 times more return on investment than Orange SA. However, PCCW is 4.38 times more volatile than Orange SA ADR. It trades about 0.09 of its potential returns per unit of risk. Orange SA ADR is currently generating about -0.29 per unit of risk. If you would invest  55.00  in PCCW Limited on September 28, 2024 and sell it today you would earn a total of  4.00  from holding PCCW Limited or generate 7.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.0%
Values	Daily Returns

PCCW Limited  vs.  Orange SA ADR

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.

Orange SA ADR

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Orange SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic 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.

Pair Trading with PCCW and Orange SA

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

The idea behind PCCW Limited and Orange SA ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.