Correlation Between Bank of China Limited and Sinocat Environmental

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

Diversification Opportunities for Bank of China Limited and Sinocat Environmental

-0.51

Correlation Coefficient

Bank of China Limited  Sinocat Environmental

Excellent diversification

The 3 months correlation between Bank and Sinocat is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental 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 Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Bank of China Limited and Sinocat Environmental

Assuming the 90 days trading horizon Bank of China Limited is expected to generate 12.34 times less return on investment than Sinocat Environmental. But when comparing it to its historical volatility, Bank of China is 2.65 times less risky than Sinocat Environmental. It trades about 0.02 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,686  in Sinocat Environmental Technology on December 2, 2024 and sell it today you would earn a total of  149.00  from holding Sinocat Environmental Technology or generate 8.84% return on investment over 90 days.

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

Bank of China  vs.  Sinocat Environmental Technolo

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.

Sinocat Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sinocat Environmental Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sinocat Environmental 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 Sinocat Environmental

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

The idea behind Bank of China and Sinocat Environmental Technology 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.