Correlation Between Charter Communications and CHINA SOUTHN

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

By analyzing existing cross correlation between Charter Communications and CHINA SOUTHN AIR H , you can compare the effects of market volatilities on Charter Communications and CHINA SOUTHN 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 Charter Communications with a short position of CHINA SOUTHN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charter Communications and CHINA SOUTHN.

Diversification Opportunities for Charter Communications and CHINA SOUTHN

0.63

Correlation Coefficient

Charter Communications  CHINA SOUTHN

Poor diversification

The 3 months correlation between Charter and CHINA is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR and Charter 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 Charter Communications are associated (or correlated) with CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of Charter Communications i.e., Charter Communications and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between Charter Communications and CHINA SOUTHN

Assuming the 90 days horizon Charter Communications is expected to generate 0.72 times more return on investment than CHINA SOUTHN. However, Charter Communications is 1.39 times less risky than CHINA SOUTHN. It trades about 0.01 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about 0.0 per unit of risk. If you would invest  34,305  in Charter Communications on September 29, 2024 and sell it today you would lose (1,080) from holding Charter Communications or give up 3.15% of portfolio value over 90 days.

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

Charter Communications  vs.  CHINA SOUTHN AIR H

Charter Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Charter Communications reported solid returns over the last few months and may actually be approaching a breakup point.

CHINA SOUTHN AIR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charter Communications and CHINA SOUTHN

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

The idea behind Charter Communications and CHINA SOUTHN AIR H 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.