Correlation Between China Communications and Pandora A/S

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

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

Diversification Opportunities for China Communications and Pandora A/S

0.72

Correlation Coefficient

China Communications  Pandora A/S

Poor diversification

The 3 months correlation between China and Pandora is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and Pandora AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pandora A/S and China 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 China Communications Services are associated (or correlated) with Pandora A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pandora A/S has no effect on the direction of China Communications i.e., China Communications and Pandora A/S go up and down completely randomly.

Pair Corralation between China Communications and Pandora A/S

Assuming the 90 days horizon China Communications is expected to generate 2.73 times less return on investment than Pandora A/S. In addition to that, China Communications is 1.21 times more volatile than Pandora AS. It trades about 0.06 of its total potential returns per unit of risk. Pandora AS is currently generating about 0.18 per unit of volatility. If you would invest  10,774  in Pandora AS on February 21, 2024 and sell it today you would earn a total of  4,956  from holding Pandora AS or generate 46.0% return on investment over 90 days.

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

China Communications Services  vs.  Pandora AS

China Communications

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pandora A/S

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pandora AS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pandora A/S reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Communications and Pandora A/S

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

The idea behind China Communications Services and Pandora AS 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..