Correlation Between Zhongshan Public and Bank of Communications

Can any of the company-specific risk be diversified away by investing in both Zhongshan Public and Bank of Communications 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 Zhongshan Public and Bank of Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhongshan Public Utilities and Bank of Communications, you can compare the effects of market volatilities on Zhongshan Public and Bank of Communications 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 Zhongshan Public with a short position of Bank of Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Public and Bank of Communications.

Diversification Opportunities for Zhongshan Public and Bank of Communications

0.23

Correlation Coefficient

Zhongshan Public  Bank of Communications

Modest diversification

The 3 months correlation between Zhongshan and Bank is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Public Utilities and Bank of Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Communications and Zhongshan Public 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 Zhongshan Public Utilities are associated (or correlated) with Bank of Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Communications has no effect on the direction of Zhongshan Public i.e., Zhongshan Public and Bank of Communications go up and down completely randomly.

Pair Corralation between Zhongshan Public and Bank of Communications

Assuming the 90 days trading horizon Zhongshan Public Utilities is expected to under-perform the Bank of Communications. In addition to that, Zhongshan Public is 1.09 times more volatile than Bank of Communications. It trades about -0.16 of its total potential returns per unit of risk. Bank of Communications is currently generating about 0.03 per unit of volatility. If you would invest  740.00  in Bank of Communications on October 9, 2024 and sell it today you would earn a total of  6.00  from holding Bank of Communications or generate 0.81% return on investment over 90 days.

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

Zhongshan Public Utilities  vs.  Bank of Communications

Zhongshan Public Uti

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhongshan Public Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhongshan Public is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bank of Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhongshan Public and Bank of Communications

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

The idea behind Zhongshan Public Utilities and Bank of Communications 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.