Correlation Between Bank of China Limited and Citic Offshore

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

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

Diversification Opportunities for Bank of China Limited and Citic Offshore

0.12

Correlation Coefficient

Bank of China Limited  Citic Offshore

Average diversification

The 3 months correlation between Bank and Citic is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Citic Offshore Helicopter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Offshore Helicopter and Bank of China Limited 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 China are associated (or correlated) with Citic Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Offshore Helicopter has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and Citic Offshore go up and down completely randomly.

Pair Corralation between Bank of China Limited and Citic Offshore

Assuming the 90 days trading horizon Bank of China is expected to generate 0.41 times more return on investment than Citic Offshore. However, Bank of China is 2.44 times less risky than Citic Offshore. It trades about -0.02 of its potential returns per unit of risk. Citic Offshore Helicopter is currently generating about -0.06 per unit of risk. If you would invest  551.00  in Bank of China on December 25, 2024 and sell it today you would lose (11.00) from holding Bank of China or give up 2.0% of portfolio value over 90 days.

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

Bank of China  vs.  Citic Offshore Helicopter

Bank of China Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of China has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bank of China Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Citic Offshore Helicopter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Citic Offshore Helicopter has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of China Limited and Citic Offshore

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

The idea behind Bank of China and Citic Offshore Helicopter 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .