Correlation Between KDDI Corp and China Tower

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

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

Diversification Opportunities for KDDI Corp and China Tower

-0.47

Correlation Coefficient

KDDI Corp  China Tower

Very good diversification

The 3 months correlation between KDDI and China is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding KDDI Corp and China Tower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Tower and KDDI Corp 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 KDDI Corp are associated (or correlated) with China Tower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Tower has no effect on the direction of KDDI Corp i.e., KDDI Corp and China Tower go up and down completely randomly.

Pair Corralation between KDDI Corp and China Tower

Assuming the 90 days horizon KDDI Corp is expected to under-perform the China Tower. But the pink sheet apears to be less risky and, when comparing its historical volatility, KDDI Corp is 3.3 times less risky than China Tower. The pink sheet trades about -0.02 of its potential returns per unit of risk. The China Tower is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10.00  in China Tower on September 18, 2024 and sell it today you would earn a total of  4.00  from holding China Tower or generate 40.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

KDDI Corp  vs.  China Tower

KDDI Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Tower

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with KDDI Corp and China Tower

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

The idea behind KDDI Corp and China Tower 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.