Correlation Between Bank of China Limited and Western Securities

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

Diversification Opportunities for Bank of China Limited and Western Securities

-0.35

Correlation Coefficient

Bank of China Limited  Western Securities

Very good diversification

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

Pair Corralation between Bank of China Limited and Western Securities

Assuming the 90 days trading horizon Bank of China is expected to generate 0.62 times more return on investment than Western Securities. However, Bank of China is 1.61 times less risky than Western Securities. It trades about 0.0 of its potential returns per unit of risk. Western Securities Co is currently generating about -0.05 per unit of risk. If you would invest  543.00  in Bank of China on December 24, 2024 and sell it today you would lose (3.00) from holding Bank of China or give up 0.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Bank of China  vs.  Western Securities Co

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.

Western Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Securities Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Western Securities 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 Western Securities

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

The idea behind Bank of China and Western Securities Co 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.