Correlation Between BOC Hong and First Bancorp

Can any of the company-specific risk be diversified away by investing in both BOC Hong and First Bancorp 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 BOC Hong and First Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BOC Hong Kong and First Bancorp, you can compare the effects of market volatilities on BOC Hong and First Bancorp 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 BOC Hong with a short position of First Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOC Hong and First Bancorp.

Diversification Opportunities for BOC Hong and First Bancorp

-0.7

Correlation Coefficient

BOC Hong  First Bancorp

Excellent diversification

The 3 months correlation between BOC and First is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding BOC Hong Kong and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and BOC Hong 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 BOC Hong Kong are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of BOC Hong i.e., BOC Hong and First Bancorp go up and down completely randomly.

Pair Corralation between BOC Hong and First Bancorp

Assuming the 90 days horizon BOC Hong Kong is expected to generate 1.21 times more return on investment than First Bancorp. However, BOC Hong is 1.21 times more volatile than First Bancorp. It trades about 0.18 of its potential returns per unit of risk. First Bancorp is currently generating about -0.08 per unit of risk. If you would invest  6,659  in BOC Hong Kong on December 27, 2024 and sell it today you would earn a total of  1,190  from holding BOC Hong Kong or generate 17.87% return on investment over 90 days.

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

BOC Hong Kong  vs.  First Bancorp

BOC Hong Kong

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BOC Hong Kong are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, BOC Hong showed solid returns over the last few months and may actually be approaching a breakup point.

First Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with BOC Hong and First Bancorp

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

The idea behind BOC Hong Kong and First Bancorp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.