Correlation Between United Fire and China Teletech

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

By analyzing existing cross correlation between United Fire Group and China Teletech Holding, you can compare the effects of market volatilities on United Fire and China Teletech 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 United Fire with a short position of China Teletech. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and China Teletech.

Diversification Opportunities for United Fire and China Teletech

0.53

Correlation Coefficient

United Fire  China Teletech

Very weak diversification

The 3 months correlation between United and China is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and China Teletech Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Teletech Holding and United Fire 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 United Fire Group are associated (or correlated) with China Teletech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Teletech Holding has no effect on the direction of United Fire i.e., United Fire and China Teletech go up and down completely randomly.

Pair Corralation between United Fire and China Teletech

Given the investment horizon of 90 days United Fire is expected to generate 2.11 times less return on investment than China Teletech. But when comparing it to its historical volatility, United Fire Group is 19.0 times less risky than China Teletech. It trades about 0.31 of its potential returns per unit of risk. China Teletech Holding is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.21  in China Teletech Holding on September 17, 2024 and sell it today you would lose (0.13) from holding China Teletech Holding or give up 61.9% of portfolio value over 90 days.

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

United Fire Group  vs.  China Teletech Holding

United Fire Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Teletech Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Teletech Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, China Teletech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Fire and China Teletech

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

The idea behind United Fire Group and China Teletech Holding 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.