Correlation Between Kuang Chi and ZTE Corp

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Can any of the company-specific risk be diversified away by investing in both Kuang Chi and ZTE Corp 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 Kuang Chi and ZTE Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kuang Chi Technologies and ZTE Corp, you can compare the effects of market volatilities on Kuang Chi and ZTE Corp 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 Kuang Chi with a short position of ZTE Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kuang Chi and ZTE Corp.

Diversification Opportunities for Kuang Chi and ZTE Corp

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Kuang and ZTE is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Kuang Chi Technologies and ZTE Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corp and Kuang Chi 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 Kuang Chi Technologies are associated (or correlated) with ZTE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corp has no effect on the direction of Kuang Chi i.e., Kuang Chi and ZTE Corp go up and down completely randomly.

Pair Corralation between Kuang Chi and ZTE Corp

Assuming the 90 days trading horizon Kuang Chi Technologies is expected to generate 1.45 times more return on investment than ZTE Corp. However, Kuang Chi is 1.45 times more volatile than ZTE Corp. It trades about 0.14 of its potential returns per unit of risk. ZTE Corp is currently generating about 0.05 per unit of risk. If you would invest  1,336  in Kuang Chi Technologies on September 3, 2024 and sell it today you would earn a total of  2,729  from holding Kuang Chi Technologies or generate 204.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Kuang Chi Technologies  vs.  ZTE Corp

 Performance 
       Timeline  
Kuang Chi Technologies 

Risk-Adjusted Performance

25 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Kuang Chi Technologies are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kuang Chi sustained solid returns over the last few months and may actually be approaching a breakup point.
ZTE Corp 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in ZTE Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ZTE Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Kuang Chi and ZTE Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kuang Chi and ZTE Corp

The main advantage of trading using opposite Kuang Chi and ZTE Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kuang Chi position performs unexpectedly, ZTE Corp 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 ZTE Corp will offset losses from the drop in ZTE Corp's long position.
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The idea behind Kuang Chi Technologies and ZTE Corp 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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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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