Correlation Between Bank of China Limited and Westone Information

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

Diversification Opportunities for Bank of China Limited and Westone Information

-0.35

Correlation Coefficient

Bank of China Limited  Westone Information

Very good diversification

The 3 months correlation between Bank and Westone is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Westone Information Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westone Information 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 Westone Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westone Information has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and Westone Information go up and down completely randomly.

Pair Corralation between Bank of China Limited and Westone Information

Assuming the 90 days trading horizon Bank of China is expected to generate 0.55 times more return on investment than Westone Information. However, Bank of China is 1.81 times less risky than Westone Information. It trades about 0.09 of its potential returns per unit of risk. Westone Information Industry is currently generating about -0.02 per unit of risk. If you would invest  511.00  in Bank of China on December 4, 2024 and sell it today you would earn a total of  31.00  from holding Bank of China or generate 6.07% return on investment over 90 days.

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

Bank of China  vs.  Westone Information Industry

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 7 (%) 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 April 2025.

Westone Information

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Bank of China Limited and Westone Information

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

The idea behind Bank of China and Westone Information Industry 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.