Correlation Between Shanghai Jin and Bank of China

Can any of the company-specific risk be diversified away by investing in both Shanghai Jin 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 Shanghai Jin 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 Shanghai Jin Jiang and Bank of China, you can compare the effects of market volatilities on Shanghai Jin 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 Shanghai Jin with a short position of Bank of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Jin and Bank of China.

Diversification Opportunities for Shanghai Jin and Bank of China

-0.4

Correlation Coefficient

Shanghai Jin  Bank of China

Very good diversification

The 3 months correlation between Shanghai and Bank is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Jin Jiang 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 Shanghai Jin 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 Shanghai Jin Jiang 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 Shanghai Jin i.e., Shanghai Jin and Bank of China go up and down completely randomly.

Pair Corralation between Shanghai Jin and Bank of China

Assuming the 90 days trading horizon Shanghai Jin Jiang is expected to under-perform the Bank of China. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Jin Jiang is 1.37 times less risky than Bank of China. The stock trades about -0.36 of its potential returns per unit of risk. The Bank of China is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  518.00  in Bank of China on October 14, 2024 and sell it today you would earn a total of  27.00  from holding Bank of China or generate 5.21% return on investment over 90 days.

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

Shanghai Jin Jiang  vs.  Bank of China

Shanghai Jin Jiang

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bank of China

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Jin and Bank of China

The main advantage of trading using opposite Shanghai Jin and Bank of China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Jin 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 Shanghai Jin Jiang 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.