Correlation Between Bank of China and Jinlong Machinery

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

Diversification Opportunities for Bank of China and Jinlong Machinery

-0.76

Correlation Coefficient

Bank of China  Jinlong Machinery

Pay attention - limited upside

The 3 months correlation between Bank and Jinlong is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Jinlong Machinery Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinlong Machinery 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 Jinlong Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinlong Machinery has no effect on the direction of Bank of China i.e., Bank of China and Jinlong Machinery go up and down completely randomly.

Pair Corralation between Bank of China and Jinlong Machinery

Assuming the 90 days trading horizon Bank of China is expected to generate 0.22 times more return on investment than Jinlong Machinery. However, Bank of China is 4.44 times less risky than Jinlong Machinery. It trades about 0.13 of its potential returns per unit of risk. Jinlong Machinery Electronic is currently generating about -0.07 per unit of risk. If you would invest  491.00  in Bank of China on October 25, 2024 and sell it today you would earn a total of  40.00  from holding Bank of China or generate 8.15% return on investment over 90 days.

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

Bank of China  vs.  Jinlong Machinery Electronic

Bank of China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 9 (%) 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.

Jinlong Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jinlong Machinery Electronic 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 Jinlong Machinery

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

The idea behind Bank of China and Jinlong Machinery Electronic 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.