Correlation Between China Mobile and Solid State
Can any of the company-specific risk be diversified away by investing in both China Mobile and Solid State 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 China Mobile and Solid State into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Mobile and Solid State System, you can compare the effects of market volatilities on China Mobile and Solid State 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 China Mobile with a short position of Solid State. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Mobile and Solid State.
Diversification Opportunities for China Mobile and Solid State
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between China and Solid is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Mobile and Solid State System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solid State System and China Mobile 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 China Mobile are associated (or correlated) with Solid State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solid State System has no effect on the direction of China Mobile i.e., China Mobile and Solid State go up and down completely randomly.
Pair Corralation between China Mobile and Solid State
Assuming the 90 days trading horizon China Mobile is expected to generate 0.52 times more return on investment than Solid State. However, China Mobile is 1.93 times less risky than Solid State. It trades about -0.01 of its potential returns per unit of risk. Solid State System is currently generating about -0.05 per unit of risk. If you would invest 1,535 in China Mobile on November 3, 2024 and sell it today you would lose (95.00) from holding China Mobile or give up 6.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 91.6% |
| Values | Daily Returns |
China Mobile vs. Solid State System
Performance |
| Timeline |
| China Mobile |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Solid State System |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
China Mobile and Solid State Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Mobile and Solid State
The main advantage of trading using opposite China Mobile and Solid State positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Mobile position performs unexpectedly, Solid State 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 Solid State will offset losses from the drop in Solid State's long position.The idea behind China Mobile and Solid State System 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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