Correlation Between BOC Hong and Postal Savings

Can any of the company-specific risk be diversified away by investing in both BOC Hong and Postal Savings 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 Postal Savings 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 Postal Savings Bank, you can compare the effects of market volatilities on BOC Hong and Postal Savings 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 Postal Savings. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOC Hong and Postal Savings.

Diversification Opportunities for BOC Hong and Postal Savings

0.76

Correlation Coefficient

BOC Hong  Postal Savings

Poor diversification

The 3 months correlation between BOC and Postal is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding BOC Hong Kong and Postal Savings Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Postal Savings Bank 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 Postal Savings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Postal Savings Bank has no effect on the direction of BOC Hong i.e., BOC Hong and Postal Savings go up and down completely randomly.

Pair Corralation between BOC Hong and Postal Savings

Assuming the 90 days horizon BOC Hong Kong is expected to generate 1.49 times more return on investment than Postal Savings. However, BOC Hong is 1.49 times more volatile than Postal Savings Bank. It trades about 0.22 of its potential returns per unit of risk. Postal Savings Bank is currently generating about 0.19 per unit of risk. If you would invest  6,594  in BOC Hong Kong on December 28, 2024 and sell it today you would earn a total of  1,567  from holding BOC Hong Kong or generate 23.76% return on investment over 90 days.

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

BOC Hong Kong  vs.  Postal Savings Bank

BOC Hong Kong

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BOC Hong Kong are ranked lower than 16 (%) 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.

Postal Savings Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Postal Savings Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, Postal Savings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BOC Hong and Postal Savings

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

The idea behind BOC Hong Kong and Postal Savings 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.