Correlation Between Nasdaq and China Teletech

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

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

Diversification Opportunities for Nasdaq and China Teletech

0.64

Correlation Coefficient

Nasdaq  China Teletech

Poor diversification

The 3 months correlation between Nasdaq and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and China Teletech Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Teletech Holding and Nasdaq 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 Nasdaq Inc are associated (or correlated) with China Teletech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Teletech Holding has no effect on the direction of Nasdaq i.e., Nasdaq and China Teletech go up and down completely randomly.

Pair Corralation between Nasdaq and China Teletech

Given the investment horizon of 90 days Nasdaq is expected to generate 109.38 times less return on investment than China Teletech. But when comparing it to its historical volatility, Nasdaq Inc is 130.28 times less risky than China Teletech. It trades about 0.16 of its potential returns per unit of risk. China Teletech Holding is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.02  in China Teletech Holding on September 14, 2024 and sell it today you would earn a total of  0.06  from holding China Teletech Holding or generate 300.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Nasdaq Inc  vs.  China Teletech Holding

Nasdaq Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Teletech Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Teletech Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, China Teletech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and China Teletech

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

The idea behind Nasdaq Inc and China Teletech Holding 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.