Correlation Between Banco De and Bank of China Ltd H

Can any of the company-specific risk be diversified away by investing in both Banco De and Bank of China Ltd H 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 Banco De and Bank of China Ltd H into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banco de Sabadell and Bank of China, you can compare the effects of market volatilities on Banco De and Bank of China Ltd H 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 Banco De with a short position of Bank of China Ltd H. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco De and Bank of China Ltd H.

Diversification Opportunities for Banco De and Bank of China Ltd H

0.37

Correlation Coefficient

Banco De  Bank of China Ltd H

Weak diversification

The 3 months correlation between Banco and Bank is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Banco de Sabadell and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China Ltd H and Banco De 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 Banco de Sabadell are associated (or correlated) with Bank of China Ltd H. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of China Ltd H has no effect on the direction of Banco De i.e., Banco De and Bank of China Ltd H go up and down completely randomly.

Pair Corralation between Banco De and Bank of China Ltd H

Assuming the 90 days horizon Banco de Sabadell is expected to generate 0.89 times more return on investment than Bank of China Ltd H. However, Banco de Sabadell is 1.12 times less risky than Bank of China Ltd H. It trades about 0.24 of its potential returns per unit of risk. Bank of China is currently generating about 0.11 per unit of risk. If you would invest  186.00  in Banco de Sabadell on December 2, 2024 and sell it today you would earn a total of  89.00  from holding Banco de Sabadell or generate 47.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.02%
Values	Daily Returns

Banco de Sabadell  vs.  Bank of China

Banco de Sabadell

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco de Sabadell are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Banco De reported solid returns over the last few months and may actually be approaching a breakup point.

Bank of China Ltd H

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Bank of China Ltd H reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco De and Bank of China Ltd H

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

The idea behind Banco de Sabadell and Bank of China 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.