Correlation Between Bank of East Asia Limited and PCCW

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

By analyzing existing cross correlation between Bank of East and PCCW Limited, you can compare the effects of market volatilities on Bank of East Asia Limited and PCCW 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 East Asia Limited with a short position of PCCW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of East Asia Limited and PCCW.

Diversification Opportunities for Bank of East Asia Limited and PCCW

-0.17

Correlation Coefficient

Bank of East Asia Limited  PCCW

Good diversification

The 3 months correlation between Bank and PCCW is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Bank of East and PCCW Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCCW Limited and Bank of East Asia Limited 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 East are associated (or correlated) with PCCW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCCW Limited has no effect on the direction of Bank of East Asia Limited i.e., Bank of East Asia Limited and PCCW go up and down completely randomly.

Pair Corralation between Bank of East Asia Limited and PCCW

Assuming the 90 days horizon Bank of East Asia Limited is expected to generate 2.86 times less return on investment than PCCW. But when comparing it to its historical volatility, Bank of East is 1.58 times less risky than PCCW. It trades about 0.03 of its potential returns per unit of risk. PCCW Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  497.00  in PCCW Limited on October 25, 2024 and sell it today you would earn a total of  72.00  from holding PCCW Limited or generate 14.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.18%
Values	Daily Returns

Bank of East  vs.  PCCW Limited

Bank of East Asia Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of East has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank of East Asia Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PCCW Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PCCW Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, PCCW is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of East Asia Limited and PCCW

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

The idea behind Bank of East and PCCW Limited 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.