Correlation Between Bank of Communications and Eternal Asia

Can any of the company-specific risk be diversified away by investing in both Bank of Communications and Eternal Asia 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 Eternal Asia 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 Eternal Asia Supply, you can compare the effects of market volatilities on Bank of Communications and Eternal Asia 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 Eternal Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Communications and Eternal Asia.

Diversification Opportunities for Bank of Communications and Eternal Asia

-0.08

Correlation Coefficient

Bank of Communications  Eternal Asia

Good diversification

The 3 months correlation between Bank and Eternal is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Communications and Eternal Asia Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Asia Supply 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 Eternal Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Asia Supply has no effect on the direction of Bank of Communications i.e., Bank of Communications and Eternal Asia go up and down completely randomly.

Pair Corralation between Bank of Communications and Eternal Asia

Assuming the 90 days trading horizon Bank of Communications is expected to under-perform the Eternal Asia. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Communications is 2.47 times less risky than Eternal Asia. The stock trades about -0.05 of its potential returns per unit of risk. The Eternal Asia Supply is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  462.00  in Eternal Asia Supply on December 25, 2024 and sell it today you would earn a total of  22.00  from holding Eternal Asia Supply or generate 4.76% return on investment over 90 days.

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

Bank of Communications  vs.  Eternal Asia Supply

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.

Eternal Asia Supply

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eternal Asia Supply are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eternal Asia may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Bank of Communications and Eternal Asia

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

The idea behind Bank of Communications and Eternal Asia Supply 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.