Correlation Between Industrial and Bank of China Limited

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

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

Diversification Opportunities for Industrial and Bank of China Limited

0.95

Correlation Coefficient

Industrial  Bank of China Limited

Almost no diversification

The 3 months correlation between Industrial and Bank is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China Limited and Industrial 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 and Commercial are associated (or correlated) with Bank of China Limited. 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 China Limited has no effect on the direction of Industrial i.e., Industrial and Bank of China Limited go up and down completely randomly.

Pair Corralation between Industrial and Bank of China Limited

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 1.05 times more return on investment than Bank of China Limited. However, Industrial is 1.05 times more volatile than Bank of China. It trades about 0.15 of its potential returns per unit of risk. Bank of China is currently generating about 0.11 per unit of risk. If you would invest  619.00  in Industrial and Commercial on November 28, 2024 and sell it today you would earn a total of  69.00  from holding Industrial and Commercial or generate 11.15% return on investment over 90 days.

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

Industrial and Commercial  vs.  Bank of China

Industrial and Commercial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Bank of China Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of China Limited may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Industrial and Bank of China Limited

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

The idea behind Industrial and Commercial and Bank of China 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.