Correlation Between INTER CARS and Bank of China

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

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

Diversification Opportunities for INTER CARS and Bank of China

0.84

Correlation Coefficient

INTER CARS  Bank of China

Very poor diversification

The 3 months correlation between INTER and Bank is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding INTER CARS SA and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China and INTER CARS 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 INTER CARS SA are associated (or correlated) with Bank of China. 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 China has no effect on the direction of INTER CARS i.e., INTER CARS and Bank of China go up and down completely randomly.

Pair Corralation between INTER CARS and Bank of China

Assuming the 90 days horizon INTER CARS is expected to generate 2.32 times less return on investment than Bank of China. But when comparing it to its historical volatility, INTER CARS SA is 2.29 times less risky than Bank of China. It trades about 0.15 of its potential returns per unit of risk. Bank of China is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Bank of China on October 26, 2024 and sell it today you would earn a total of  14.00  from holding Bank of China or generate 41.18% return on investment over 90 days.

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

INTER CARS SA  vs.  Bank of China

INTER CARS SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INTER CARS SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INTER CARS reported solid returns over the last few months and may actually be approaching a breakup point.

Bank of China

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bank of China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INTER CARS and Bank of China

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

The idea behind INTER CARS SA and Bank of China 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.