Correlation Between Bank of China and ABN AMRO

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

Diversification Opportunities for Bank of China and ABN AMRO

-0.41

Correlation Coefficient

Bank of China  ABN AMRO

Very good diversification

The 3 months correlation between Bank and ABN is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and ABN AMRO Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABN AMRO Bank and Bank of China 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 ABN AMRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABN AMRO Bank has no effect on the direction of Bank of China i.e., Bank of China and ABN AMRO go up and down completely randomly.

Pair Corralation between Bank of China and ABN AMRO

Assuming the 90 days horizon Bank of China is expected to generate 2.46 times more return on investment than ABN AMRO. However, Bank of China is 2.46 times more volatile than ABN AMRO Bank. It trades about 0.08 of its potential returns per unit of risk. ABN AMRO Bank is currently generating about -0.15 per unit of risk. If you would invest  43.00  in Bank of China on September 13, 2024 and sell it today you would earn a total of  7.00  from holding Bank of China or generate 16.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Bank of China  vs.  ABN AMRO Bank

Bank of China

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Bank of China reported solid returns over the last few months and may actually be approaching a breakup point.

ABN AMRO Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABN AMRO Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank of China and ABN AMRO

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

The idea behind Bank of China and ABN AMRO Bank 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.