Correlation Between Gome Telecom and Topsec Technologies

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

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

Diversification Opportunities for Gome Telecom and Topsec Technologies

0.67

Correlation Coefficient

Gome Telecom  Topsec Technologies

Poor diversification

The 3 months correlation between Gome and Topsec is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Gome Telecom Equipment and Topsec Technologies Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topsec Technologies and Gome Telecom 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 Gome Telecom Equipment are associated (or correlated) with Topsec Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topsec Technologies has no effect on the direction of Gome Telecom i.e., Gome Telecom and Topsec Technologies go up and down completely randomly.

Pair Corralation between Gome Telecom and Topsec Technologies

Assuming the 90 days trading horizon Gome Telecom Equipment is expected to under-perform the Topsec Technologies. In addition to that, Gome Telecom is 1.16 times more volatile than Topsec Technologies Group. It trades about -0.03 of its total potential returns per unit of risk. Topsec Technologies Group is currently generating about -0.03 per unit of volatility. If you would invest  1,023  in Topsec Technologies Group on September 4, 2024 and sell it today you would lose (297.00) from holding Topsec Technologies Group or give up 29.03% of portfolio value over 90 days.

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

Gome Telecom Equipment  vs.  Topsec Technologies Group

Gome Telecom Equipment

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gome Telecom Equipment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gome Telecom sustained solid returns over the last few months and may actually be approaching a breakup point.

Topsec Technologies

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Topsec Technologies Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Topsec Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gome Telecom and Topsec Technologies

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

The idea behind Gome Telecom Equipment and Topsec Technologies Group 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.