Correlation Between Bohai Leasing and China State

Can any of the company-specific risk be diversified away by investing in both Bohai Leasing and China 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 Bohai Leasing and China State into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bohai Leasing Co and China State Construction, you can compare the effects of market volatilities on Bohai Leasing and China 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 Bohai Leasing with a short position of China State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bohai Leasing and China State.

Diversification Opportunities for Bohai Leasing and China State

0.05

Correlation Coefficient

Bohai Leasing  China State

Significant diversification

The 3 months correlation between Bohai and China is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Bohai Leasing Co and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State Construction and Bohai Leasing 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 Bohai Leasing Co are associated (or correlated) with China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of Bohai Leasing i.e., Bohai Leasing and China State go up and down completely randomly.

Pair Corralation between Bohai Leasing and China State

Assuming the 90 days trading horizon Bohai Leasing Co is expected to under-perform the China State. In addition to that, Bohai Leasing is 1.89 times more volatile than China State Construction. It trades about -0.2 of its total potential returns per unit of risk. China State Construction is currently generating about -0.21 per unit of volatility. If you would invest  591.00  in China State Construction on October 21, 2024 and sell it today you would lose (28.00) from holding China State Construction or give up 4.74% of portfolio value over 90 days.

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

Bohai Leasing Co  vs.  China State Construction

Bohai Leasing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bohai Leasing Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bohai Leasing sustained solid returns over the last few months and may actually be approaching a breakup point.

China State Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China State Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bohai Leasing and China State

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

The idea behind Bohai Leasing Co and China State Construction 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.