Correlation Between Shenzhen Kexin and Bank of China

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

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

Diversification Opportunities for Shenzhen Kexin and Bank of China

0.08

Correlation Coefficient

Shenzhen Kexin  Bank of China

Significant diversification

The 3 months correlation between Shenzhen and Bank is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Kexin Communication and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China and Shenzhen Kexin 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 Shenzhen Kexin Communication are associated (or correlated) with Bank of China. 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 China has no effect on the direction of Shenzhen Kexin i.e., Shenzhen Kexin and Bank of China go up and down completely randomly.

Pair Corralation between Shenzhen Kexin and Bank of China

Assuming the 90 days trading horizon Shenzhen Kexin Communication is expected to under-perform the Bank of China. In addition to that, Shenzhen Kexin is 2.64 times more volatile than Bank of China. It trades about -0.02 of its total potential returns per unit of risk. Bank of China is currently generating about 0.1 per unit of volatility. If you would invest  301.00  in Bank of China on September 26, 2024 and sell it today you would earn a total of  242.00  from holding Bank of China or generate 80.4% return on investment over 90 days.

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

Shenzhen Kexin Communication  vs.  Bank of China

Shenzhen Kexin Commu

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Kexin Communication are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Kexin sustained solid returns over the last few months and may actually be approaching a breakup point.

Bank of China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shenzhen Kexin and Bank of China

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

The idea behind Shenzhen Kexin Communication and Bank of China 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.