Correlation Between Ribbon Communications and China Energy

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

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

Diversification Opportunities for Ribbon Communications and China Energy

0.58

Correlation Coefficient

Ribbon Communications  China Energy

Very weak diversification

The 3 months correlation between Ribbon and China is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and China Energy Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Energy Engineering and Ribbon 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 Ribbon Communications are associated (or correlated) with China Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Energy Engineering has no effect on the direction of Ribbon Communications i.e., Ribbon Communications and China Energy go up and down completely randomly.

Pair Corralation between Ribbon Communications and China Energy

Assuming the 90 days trading horizon Ribbon Communications is expected to under-perform the China Energy. But the stock apears to be less risky and, when comparing its historical volatility, Ribbon Communications is 3.48 times less risky than China Energy. The stock trades about -0.11 of its potential returns per unit of risk. The China Energy Engineering is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11.00  in China Energy Engineering on September 13, 2024 and sell it today you would earn a total of  1.00  from holding China Energy Engineering or generate 9.09% return on investment over 90 days.

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

Ribbon Communications  vs.  China Energy Engineering

Ribbon Communications

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

China Energy Engineering

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Ribbon Communications and China Energy

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

The idea behind Ribbon Communications and China Energy Engineering 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.