Correlation Between Industrial Bank and China Life

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

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

Diversification Opportunities for Industrial Bank and China Life

-0.61

Correlation Coefficient

Industrial Bank  China Life

Excellent diversification

The 3 months correlation between Industrial and China is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Bank Co and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and Industrial Bank 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 Industrial Bank Co are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Industrial Bank i.e., Industrial Bank and China Life go up and down completely randomly.

Pair Corralation between Industrial Bank and China Life

Assuming the 90 days trading horizon Industrial Bank Co is expected to generate 0.76 times more return on investment than China Life. However, Industrial Bank Co is 1.32 times less risky than China Life. It trades about 0.03 of its potential returns per unit of risk. China Life Insurance is currently generating about -0.16 per unit of risk. If you would invest  2,031  in Industrial Bank Co on November 28, 2024 and sell it today you would earn a total of  10.00  from holding Industrial Bank Co or generate 0.49% return on investment over 90 days.

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

Industrial Bank Co  vs.  China Life Insurance

Industrial Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

China Life Insurance

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Industrial Bank and China Life

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

The idea behind Industrial Bank Co and China Life Insurance 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..