Correlation Between Bank of China and EVE Energy

Can any of the company-specific risk be diversified away by investing in both Bank of China and EVE Energy 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 and EVE Energy 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 EVE Energy, you can compare the effects of market volatilities on Bank of China and EVE Energy 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 with a short position of EVE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of China and EVE Energy.

Diversification Opportunities for Bank of China and EVE Energy

-0.22

Correlation Coefficient

Bank of China  EVE Energy

Very good diversification

The 3 months correlation between Bank and EVE is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and EVE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVE Energy and Bank of China 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 EVE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVE Energy has no effect on the direction of Bank of China i.e., Bank of China and EVE Energy go up and down completely randomly.

Pair Corralation between Bank of China and EVE Energy

Assuming the 90 days trading horizon Bank of China is expected to generate 0.37 times more return on investment than EVE Energy. However, Bank of China is 2.71 times less risky than EVE Energy. It trades about 0.1 of its potential returns per unit of risk. EVE Energy is currently generating about 0.02 per unit of risk. If you would invest  377.00  in Bank of China on October 5, 2024 and sell it today you would earn a total of  158.00  from holding Bank of China or generate 41.91% 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.  EVE Energy

Bank of China

Risk-Adjusted Performance

7 of 100

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 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

EVE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank of China and EVE Energy

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

The idea behind Bank of China and EVE Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.