Correlation Between China Telecom and New China

Can any of the company-specific risk be diversified away by investing in both China Telecom and New China 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 New China 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 New China Life, you can compare the effects of market volatilities on China Telecom and New China 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 New China. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Telecom and New China.

Diversification Opportunities for China Telecom and New China

0.91

Correlation Coefficient

China Telecom  New China

Almost no diversification

The 3 months correlation between China and New is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding China Telecom Corp and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life 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 New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of China Telecom i.e., China Telecom and New China go up and down completely randomly.

Pair Corralation between China Telecom and New China

Assuming the 90 days trading horizon China Telecom is expected to generate 4.29 times less return on investment than New China. But when comparing it to its historical volatility, China Telecom Corp is 1.7 times less risky than New China. It trades about 0.08 of its potential returns per unit of risk. New China Life is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,310  in New China Life on September 5, 2024 and sell it today you would earn a total of  1,567  from holding New China Life or generate 47.34% return on investment over 90 days.

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

China Telecom Corp  vs.  New China Life

China Telecom Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Telecom Corp are ranked lower than 6 (%) 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.

New China Life

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, New China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Telecom and New China

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

The idea behind China Telecom Corp and New China Life 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.