Correlation Between Bank of Communications and China Fortune

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

Diversification Opportunities for Bank of Communications and China Fortune

0.47

Correlation Coefficient

Bank of Communications  China Fortune

Very weak diversification

The 3 months correlation between Bank and China is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Communications and China Fortune Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Fortune Land 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 China Fortune. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Fortune Land has no effect on the direction of Bank of Communications i.e., Bank of Communications and China Fortune go up and down completely randomly.

Pair Corralation between Bank of Communications and China Fortune

Assuming the 90 days trading horizon Bank of Communications is expected to generate 0.35 times more return on investment than China Fortune. However, Bank of Communications is 2.88 times less risky than China Fortune. It trades about -0.05 of its potential returns per unit of risk. China Fortune Land is currently generating about -0.09 per unit of risk. If you would invest  773.00  in Bank of Communications on December 24, 2024 and sell it today you would lose (29.00) from holding Bank of Communications or give up 3.75% of portfolio value over 90 days.

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

Bank of Communications  vs.  China Fortune Land

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.

China Fortune Land

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Fortune Land 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 China Fortune

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

The idea behind Bank of Communications and China Fortune Land 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 Transaction History module to view history of all your transactions and understand their impact on performance.