Correlation Between Bank of America and CHINA TELECOM

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

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

Diversification Opportunities for Bank of America and CHINA TELECOM

-0.03

Correlation Coefficient

Bank of America  CHINA TELECOM

Good diversification

The 3 months correlation between Bank and CHINA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and CHINA TELECOM H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA TELECOM H and Bank of America 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 Verizon Communications are associated (or correlated) with CHINA TELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA TELECOM H has no effect on the direction of Bank of America i.e., Bank of America and CHINA TELECOM go up and down completely randomly.

Pair Corralation between Bank of America and CHINA TELECOM

Assuming the 90 days trading horizon Bank of America is expected to generate 4.23 times less return on investment than CHINA TELECOM. But when comparing it to its historical volatility, Verizon Communications is 2.63 times less risky than CHINA TELECOM. It trades about 0.08 of its potential returns per unit of risk. CHINA TELECOM H is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  20.00  in CHINA TELECOM H on September 17, 2024 and sell it today you would earn a total of  32.00  from holding CHINA TELECOM H or generate 160.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Verizon Communications  vs.  CHINA TELECOM H

Verizon Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Bank of America is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CHINA TELECOM H

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA TELECOM H are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, CHINA TELECOM is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank of America and CHINA TELECOM

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

The idea behind Verizon Communications and CHINA TELECOM H 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 Stocks Directory module to find actively traded stocks across global markets.