Correlation Between Bank of China Limited and China Minsheng

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

Diversification Opportunities for Bank of China Limited and China Minsheng

0.25

Correlation Coefficient

Bank of China Limited  China Minsheng

Modest diversification

The 3 months correlation between Bank and China is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and China Minsheng Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Minsheng Banking 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 China Minsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Minsheng Banking has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and China Minsheng go up and down completely randomly.

Pair Corralation between Bank of China Limited and China Minsheng

Assuming the 90 days trading horizon Bank of China is expected to generate 1.8 times more return on investment than China Minsheng. However, Bank of China Limited is 1.8 times more volatile than China Minsheng Banking. It trades about -0.04 of its potential returns per unit of risk. China Minsheng Banking is currently generating about -0.07 per unit of risk. If you would invest  545.00  in Bank of China on November 27, 2024 and sell it today you would lose (4.00) from holding Bank of China or give up 0.73% of portfolio value over 90 days.

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

Bank of China  vs.  China Minsheng Banking

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 8 (%) 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 March 2025.

China Minsheng Banking

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Minsheng Banking are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Minsheng 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 China Minsheng

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

The idea behind Bank of China and China Minsheng Banking 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.