Correlation Between China Mobile and Shanghai Rongtai

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

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

Diversification Opportunities for China Mobile and Shanghai Rongtai

0.45

Correlation Coefficient

China Mobile  Shanghai Rongtai

Very weak diversification

The 3 months correlation between China and Shanghai is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding China Mobile Limited and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health and China Mobile 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 China Mobile Limited are associated (or correlated) with Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of China Mobile i.e., China Mobile and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between China Mobile and Shanghai Rongtai

Assuming the 90 days trading horizon China Mobile is expected to generate 6.64 times less return on investment than Shanghai Rongtai. But when comparing it to its historical volatility, China Mobile Limited is 1.74 times less risky than Shanghai Rongtai. It trades about 0.04 of its potential returns per unit of risk. Shanghai Rongtai Health is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,188  in Shanghai Rongtai Health on September 3, 2024 and sell it today you would earn a total of  298.00  from holding Shanghai Rongtai Health or generate 25.08% return on investment over 90 days.

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

China Mobile Limited  vs.  Shanghai Rongtai Health

China Mobile Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Mobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Rongtai Health

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Mobile and Shanghai Rongtai

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

The idea behind China Mobile Limited and Shanghai Rongtai Health 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.