Correlation Between Changchun BCHT and Bank of Communications

Can any of the company-specific risk be diversified away by investing in both Changchun BCHT and Bank of Communications 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 Changchun BCHT and Bank of Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changchun BCHT Biotechnology and Bank of Communications, you can compare the effects of market volatilities on Changchun BCHT and Bank of Communications 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 Changchun BCHT with a short position of Bank of Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun BCHT and Bank of Communications.

Diversification Opportunities for Changchun BCHT and Bank of Communications

-0.33

Correlation Coefficient

Changchun BCHT  Bank of Communications

Very good diversification

The 3 months correlation between Changchun and Bank is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Changchun BCHT Biotechnology and Bank of Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Communications and Changchun BCHT 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 Changchun BCHT Biotechnology are associated (or correlated) with Bank of Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Communications has no effect on the direction of Changchun BCHT i.e., Changchun BCHT and Bank of Communications go up and down completely randomly.

Pair Corralation between Changchun BCHT and Bank of Communications

Assuming the 90 days trading horizon Changchun BCHT Biotechnology is expected to under-perform the Bank of Communications. In addition to that, Changchun BCHT is 1.4 times more volatile than Bank of Communications. It trades about -0.34 of its total potential returns per unit of risk. Bank of Communications is currently generating about 0.02 per unit of volatility. If you would invest  750.00  in Bank of Communications on October 11, 2024 and sell it today you would earn a total of  2.00  from holding Bank of Communications or generate 0.27% return on investment over 90 days.

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

Changchun BCHT Biotechnology  vs.  Bank of Communications

Changchun BCHT Biote

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun BCHT Biotechnology 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.

Bank of Communications

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Bank of Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bank of Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Changchun BCHT and Bank of Communications

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

The idea behind Changchun BCHT Biotechnology and Bank of Communications 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.