Correlation Between Bank of Communications and Shenzhen Agricultural

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

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

Diversification Opportunities for Bank of Communications and Shenzhen Agricultural

0.3

Correlation Coefficient

Bank of Communications  Shenzhen Agricultural

Weak diversification

The 3 months correlation between Bank and Shenzhen is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Communications and Shenzhen Agricultural Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Agricultural and Bank of Communications 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 Bank of Communications are associated (or correlated) with Shenzhen Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Agricultural has no effect on the direction of Bank of Communications i.e., Bank of Communications and Shenzhen Agricultural go up and down completely randomly.

Pair Corralation between Bank of Communications and Shenzhen Agricultural

Assuming the 90 days trading horizon Bank of Communications is expected to generate 0.7 times more return on investment than Shenzhen Agricultural. However, Bank of Communications is 1.44 times less risky than Shenzhen Agricultural. It trades about -0.03 of its potential returns per unit of risk. Shenzhen Agricultural Products is currently generating about -0.19 per unit of risk. If you would invest  736.00  in Bank of Communications on December 4, 2024 and sell it today you would lose (16.00) from holding Bank of Communications or give up 2.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Bank of Communications  vs.  Shenzhen Agricultural Products

Bank of Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Communications has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Shenzhen Agricultural

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Agricultural Products 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank of Communications and Shenzhen Agricultural

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

The idea behind Bank of Communications and Shenzhen Agricultural Products 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.