Correlation Between Hainan Mining and Bank of China

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

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

Diversification Opportunities for Hainan Mining and Bank of China

0.72

Correlation Coefficient

Hainan Mining  Bank of China

Poor diversification

The 3 months correlation between Hainan and Bank is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China and Hainan Mining 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 Hainan Mining Co are associated (or correlated) with Bank of China. 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 has no effect on the direction of Hainan Mining i.e., Hainan Mining and Bank of China go up and down completely randomly.

Pair Corralation between Hainan Mining and Bank of China

Assuming the 90 days trading horizon Hainan Mining Co is expected to generate 1.8 times more return on investment than Bank of China. However, Hainan Mining is 1.8 times more volatile than Bank of China. It trades about 0.06 of its potential returns per unit of risk. Bank of China is currently generating about 0.09 per unit of risk. If you would invest  662.00  in Hainan Mining Co on September 15, 2024 and sell it today you would earn a total of  112.00  from holding Hainan Mining Co or generate 16.92% return on investment over 90 days.

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

Hainan Mining Co  vs.  Bank of China

Hainan Mining

Risk-Adjusted Performance

15 of 100

Good

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

Bank of China

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hainan Mining and Bank of China

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

The idea behind Hainan Mining Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.