Correlation Between Choice Hotels and CHINA TELECOM

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

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

Diversification Opportunities for Choice Hotels and CHINA TELECOM

-0.24

Correlation Coefficient

Choice Hotels  CHINA TELECOM

Very good diversification

The 3 months correlation between Choice and CHINA is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Choice Hotels International and CHINA TELECOM H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA TELECOM H and Choice Hotels 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 Choice Hotels International are associated (or correlated) with CHINA TELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA TELECOM H has no effect on the direction of Choice Hotels i.e., Choice Hotels and CHINA TELECOM go up and down completely randomly.

Pair Corralation between Choice Hotels and CHINA TELECOM

Assuming the 90 days horizon Choice Hotels International is expected to generate 1.34 times more return on investment than CHINA TELECOM. However, Choice Hotels is 1.34 times more volatile than CHINA TELECOM H . It trades about 0.18 of its potential returns per unit of risk. CHINA TELECOM H is currently generating about 0.03 per unit of risk. If you would invest  11,472  in Choice Hotels International on September 20, 2024 and sell it today you would earn a total of  2,228  from holding Choice Hotels International or generate 19.42% return on investment over 90 days.

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

Choice Hotels International  vs.  CHINA TELECOM H

Choice Hotels Intern

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Choice Hotels International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Choice Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

CHINA TELECOM H

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA TELECOM H are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, CHINA TELECOM 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 Choice Hotels and CHINA TELECOM

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

The idea behind Choice Hotels International and CHINA TELECOM 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.