Correlation Between China Communications and Levi Strauss

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

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

Diversification Opportunities for China Communications and Levi Strauss

-0.32

Correlation Coefficient

China Communications  Levi Strauss

Very good diversification

The 3 months correlation between China and Levi is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and Levi Strauss Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Levi Strauss and China Communications 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 Communications Services are associated (or correlated) with Levi Strauss. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Levi Strauss has no effect on the direction of China Communications i.e., China Communications and Levi Strauss go up and down completely randomly.

Pair Corralation between China Communications and Levi Strauss

Assuming the 90 days horizon China Communications Services is expected to generate 0.92 times more return on investment than Levi Strauss. However, China Communications Services is 1.09 times less risky than Levi Strauss. It trades about 0.13 of its potential returns per unit of risk. Levi Strauss Co is currently generating about -0.02 per unit of risk. If you would invest  43.00  in China Communications Services on September 12, 2024 and sell it today you would earn a total of  8.00  from holding China Communications Services or generate 18.6% return on investment over 90 days.

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

China Communications Services  vs.  Levi Strauss Co

China Communications

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Levi Strauss

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Levi Strauss Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Levi Strauss is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Communications and Levi Strauss

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

The idea behind China Communications Services and Levi Strauss 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.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.