Correlation Between Hua Xia and Bank of Suzhou

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

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

Diversification Opportunities for Hua Xia and Bank of Suzhou

0.86

Correlation Coefficient

Hua Xia  Bank of Suzhou

Very poor diversification

The 3 months correlation between Hua and Bank is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Bank of Suzhou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Suzhou and Hua Xia 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 Hua Xia Bank are associated (or correlated) with Bank of Suzhou. 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 Suzhou has no effect on the direction of Hua Xia i.e., Hua Xia and Bank of Suzhou go up and down completely randomly.

Pair Corralation between Hua Xia and Bank of Suzhou

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 0.95 times more return on investment than Bank of Suzhou. However, Hua Xia Bank is 1.05 times less risky than Bank of Suzhou. It trades about 0.07 of its potential returns per unit of risk. Bank of Suzhou is currently generating about 0.03 per unit of risk. If you would invest  489.00  in Hua Xia Bank on October 15, 2024 and sell it today you would earn a total of  259.00  from holding Hua Xia Bank or generate 52.97% return on investment over 90 days.

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

Hua Xia Bank  vs.  Bank of Suzhou

Hua Xia Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hua Xia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bank of Suzhou

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Hua Xia and Bank of Suzhou

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

The idea behind Hua Xia Bank and Bank of Suzhou 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.