Correlation Between CITIC Telecom and Bank of America

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

By analyzing existing cross correlation between CITIC Telecom International and Verizon Communications, you can compare the effects of market volatilities on CITIC Telecom and Bank of America 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 CITIC Telecom with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of CITIC Telecom and Bank of America.

Diversification Opportunities for CITIC Telecom and Bank of America

0.25

Correlation Coefficient

CITIC Telecom  Bank of America

Modest diversification

The 3 months correlation between CITIC and Bank is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Telecom International and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and CITIC 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 CITIC Telecom International are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of CITIC Telecom i.e., CITIC Telecom and Bank of America go up and down completely randomly.

Pair Corralation between CITIC Telecom and Bank of America

Assuming the 90 days horizon CITIC Telecom International is expected to generate 7.36 times more return on investment than Bank of America. However, CITIC Telecom is 7.36 times more volatile than Verizon Communications. It trades about 0.07 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest  10.00  in CITIC Telecom International on September 25, 2024 and sell it today you would earn a total of  17.00  from holding CITIC Telecom International or generate 170.0% return on investment over 90 days.

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

CITIC Telecom International  vs.  Verizon Communications

CITIC Telecom Intern

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Telecom International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CITIC Telecom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CITIC Telecom and Bank of America

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

The idea behind CITIC Telecom International and Verizon Communications 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.