Correlation Between Bank of China and Inner Mongolia

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

Diversification Opportunities for Bank of China and Inner Mongolia

0.47

Correlation Coefficient

Bank of China  Inner Mongolia

Very weak diversification

The 3 months correlation between Bank and Inner is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Inner Mongolia Furui in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia Furui 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 Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia Furui has no effect on the direction of Bank of China i.e., Bank of China and Inner Mongolia go up and down completely randomly.

Pair Corralation between Bank of China and Inner Mongolia

Assuming the 90 days trading horizon Bank of China is expected to generate 1.35 times less return on investment than Inner Mongolia. But when comparing it to its historical volatility, Bank of China is 3.16 times less risky than Inner Mongolia. It trades about 0.03 of its potential returns per unit of risk. Inner Mongolia Furui is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,903  in Inner Mongolia Furui on September 2, 2024 and sell it today you would lose (121.00) from holding Inner Mongolia Furui or give up 3.1% of portfolio value over 90 days.

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

Bank of China  vs.  Inner Mongolia Furui

Bank of China

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inner Mongolia Furui

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia Furui are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Inner Mongolia 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 and Inner Mongolia

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

The idea behind Bank of China and Inner Mongolia Furui 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.