Correlation Between China Mobile and Jiangsu Changfa

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Can any of the company-specific risk be diversified away by investing in both China Mobile and Jiangsu Changfa 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 Jiangsu Changfa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Mobile Limited and Jiangsu Changfa Refrigeration, you can compare the effects of market volatilities on China Mobile and Jiangsu Changfa 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 Jiangsu Changfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Mobile and Jiangsu Changfa.

Diversification Opportunities for China Mobile and Jiangsu Changfa

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between China and Jiangsu is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Mobile Limited and Jiangsu Changfa Refrigeration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Changfa Refr 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 Limited are associated (or correlated) with Jiangsu Changfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Changfa Refr has no effect on the direction of China Mobile i.e., China Mobile and Jiangsu Changfa go up and down completely randomly.

Pair Corralation between China Mobile and Jiangsu Changfa

Assuming the 90 days trading horizon China Mobile is expected to generate 3.98 times less return on investment than Jiangsu Changfa. But when comparing it to its historical volatility, China Mobile Limited is 2.11 times less risky than Jiangsu Changfa. It trades about 0.05 of its potential returns per unit of risk. Jiangsu Changfa Refrigeration is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  370.00  in Jiangsu Changfa Refrigeration on September 5, 2024 and sell it today you would earn a total of  112.00  from holding Jiangsu Changfa Refrigeration or generate 30.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

China Mobile Limited  vs.  Jiangsu Changfa Refrigeration

 Performance 
       Timeline  
China Mobile Limited 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Mobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Jiangsu Changfa Refr 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Changfa Refrigeration are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Changfa sustained solid returns over the last few months and may actually be approaching a breakup point.

China Mobile and Jiangsu Changfa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Mobile and Jiangsu Changfa

The main advantage of trading using opposite China Mobile and Jiangsu Changfa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Mobile position performs unexpectedly, Jiangsu Changfa 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 Jiangsu Changfa will offset losses from the drop in Jiangsu Changfa's long position.
The idea behind China Mobile Limited and Jiangsu Changfa Refrigeration 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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