Correlation Between Bank of China Limited and Heilongjiang Transport

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

Diversification Opportunities for Bank of China Limited and Heilongjiang Transport

-0.64

Correlation Coefficient

Bank of China Limited  Heilongjiang Transport

Excellent diversification

The 3 months correlation between Bank and Heilongjiang is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Heilongjiang Transport Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heilongjiang Transport 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 Heilongjiang Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heilongjiang Transport has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and Heilongjiang Transport go up and down completely randomly.

Pair Corralation between Bank of China Limited and Heilongjiang Transport

Assuming the 90 days trading horizon Bank of China is expected to generate 0.58 times more return on investment than Heilongjiang Transport. However, Bank of China is 1.71 times less risky than Heilongjiang Transport. It trades about 0.11 of its potential returns per unit of risk. Heilongjiang Transport Development is currently generating about -0.16 per unit of risk. If you would invest  501.00  in Bank of China on December 2, 2024 and sell it today you would earn a total of  39.00  from holding Bank of China or generate 7.78% 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.  Heilongjiang Transport Develop

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 April 2025.

Heilongjiang Transport

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heilongjiang Transport Development 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank of China Limited and Heilongjiang Transport

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

The idea behind Bank of China and Heilongjiang Transport Development 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.