Correlation Between China Shenhua and China Telecom

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

By analyzing existing cross correlation between China Shenhua Energy and China Telecom Corp, you can compare the effects of market volatilities on China Shenhua and China Telecom 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 Shenhua with a short position of China Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Shenhua and China Telecom.

Diversification Opportunities for China Shenhua and China Telecom

0.59

Correlation Coefficient

China Shenhua  China Telecom

Very weak diversification

The 3 months correlation between China and China is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding China Shenhua Energy and China Telecom Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Telecom Corp and China Shenhua 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 Shenhua Energy are associated (or correlated) with China Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Telecom Corp has no effect on the direction of China Shenhua i.e., China Shenhua and China Telecom go up and down completely randomly.

Pair Corralation between China Shenhua and China Telecom

Assuming the 90 days trading horizon China Shenhua Energy is expected to under-perform the China Telecom. But the stock apears to be less risky and, when comparing its historical volatility, China Shenhua Energy is 1.03 times less risky than China Telecom. The stock trades about -0.01 of its potential returns per unit of risk. The China Telecom Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  602.00  in China Telecom Corp on September 1, 2024 and sell it today you would earn a total of  45.00  from holding China Telecom Corp or generate 7.48% return on investment over 90 days.

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

China Shenhua Energy  vs.  China Telecom Corp

China Shenhua Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Shenhua Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Shenhua is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Telecom Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Telecom Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Telecom may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with China Shenhua and China Telecom

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

The idea behind China Shenhua Energy and China Telecom Corp 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..