Correlation Between China Metal and Far EasTone
Can any of the company-specific risk be diversified away by investing in both China Metal and Far EasTone 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 Metal and Far EasTone into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Metal Products and Far EasTone Telecommunications, you can compare the effects of market volatilities on China Metal and Far EasTone 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 Metal with a short position of Far EasTone. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and Far EasTone.
Diversification Opportunities for China Metal and Far EasTone
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between China and Far is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Far EasTone Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far EasTone Telecomm and China Metal 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 Metal Products are associated (or correlated) with Far EasTone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far EasTone Telecomm has no effect on the direction of China Metal i.e., China Metal and Far EasTone go up and down completely randomly.
Pair Corralation between China Metal and Far EasTone
Assuming the 90 days trading horizon China Metal Products is expected to under-perform the Far EasTone. In addition to that, China Metal is 1.26 times more volatile than Far EasTone Telecommunications. It trades about -0.24 of its total potential returns per unit of risk. Far EasTone Telecommunications is currently generating about -0.02 per unit of volatility. If you would invest 8,880 in Far EasTone Telecommunications on November 3, 2024 and sell it today you would lose (70.00) from holding Far EasTone Telecommunications or give up 0.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Metal Products vs. Far EasTone Telecommunications
Performance |
| Timeline |
| China Metal Products |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Far EasTone Telecomm |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
China Metal and Far EasTone Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Metal and Far EasTone
The main advantage of trading using opposite China Metal and Far EasTone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Metal position performs unexpectedly, Far EasTone 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 Far EasTone will offset losses from the drop in Far EasTone's long position.The idea behind China Metal Products and Far EasTone Telecommunications 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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