Correlation Between China Publishing and Eastern Communications

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

By analyzing existing cross correlation between China Publishing Media and Eastern Communications Co, you can compare the effects of market volatilities on China Publishing and Eastern Communications 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 Publishing with a short position of Eastern Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Publishing and Eastern Communications.

Diversification Opportunities for China Publishing and Eastern Communications

0.69

Correlation Coefficient

China Publishing  Eastern Communications

Poor diversification

The 3 months correlation between China and Eastern is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding China Publishing Media and Eastern Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Communications and China Publishing 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 Publishing Media are associated (or correlated) with Eastern Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Communications has no effect on the direction of China Publishing i.e., China Publishing and Eastern Communications go up and down completely randomly.

Pair Corralation between China Publishing and Eastern Communications

Assuming the 90 days trading horizon China Publishing is expected to generate 1.25 times less return on investment than Eastern Communications. In addition to that, China Publishing is 1.51 times more volatile than Eastern Communications Co. It trades about 0.04 of its total potential returns per unit of risk. Eastern Communications Co is currently generating about 0.08 per unit of volatility. If you would invest  38.00  in Eastern Communications Co on September 30, 2024 and sell it today you would earn a total of  4.00  from holding Eastern Communications Co or generate 10.53% return on investment over 90 days.

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

China Publishing Media  vs.  Eastern Communications Co

China Publishing Media

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Publishing Media are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Publishing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Eastern Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Communications Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Publishing and Eastern Communications

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

The idea behind China Publishing Media and Eastern Communications Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.