Correlation Between China Telecom and Changchun

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

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

Diversification Opportunities for China Telecom and Changchun

0.77

Correlation Coefficient

China Telecom  Changchun

Poor diversification

The 3 months correlation between China and Changchun is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Telecom Corp and Changchun UP Optotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun UP Optotech and China 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 China Telecom Corp are associated (or correlated) with Changchun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun UP Optotech has no effect on the direction of China Telecom i.e., China Telecom and Changchun go up and down completely randomly.

Pair Corralation between China Telecom and Changchun

Assuming the 90 days trading horizon China Telecom is expected to generate 6.62 times less return on investment than Changchun. But when comparing it to its historical volatility, China Telecom Corp is 2.06 times less risky than Changchun. It trades about 0.07 of its potential returns per unit of risk. Changchun UP Optotech is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,558  in Changchun UP Optotech on September 4, 2024 and sell it today you would earn a total of  1,761  from holding Changchun UP Optotech or generate 68.84% return on investment over 90 days.

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

China Telecom Corp  vs.  Changchun UP Optotech

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 January 2025.

Changchun UP Optotech

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Telecom and Changchun

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

The idea behind China Telecom Corp and Changchun UP Optotech 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 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.