Correlation Between CHINA CONBANK and Industrial

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

By analyzing existing cross correlation between CHINA BANK ADR20 and Industrial and Commercial, you can compare the effects of market volatilities on CHINA CONBANK and Industrial 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 CHINA CONBANK with a short position of Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA CONBANK and Industrial.

Diversification Opportunities for CHINA CONBANK and Industrial

0.89

Correlation Coefficient

CHINA CONBANK  Industrial

Very poor diversification

The 3 months correlation between CHINA and Industrial is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding CHINA BANK ADR20 and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial and CHINA CONBANK 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 CHINA BANK ADR20 are associated (or correlated) with Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of CHINA CONBANK i.e., CHINA CONBANK and Industrial go up and down completely randomly.

Pair Corralation between CHINA CONBANK and Industrial

Assuming the 90 days trading horizon CHINA BANK ADR20 is expected to generate 0.65 times more return on investment than Industrial. However, CHINA BANK ADR20 is 1.54 times less risky than Industrial. It trades about 0.11 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.03 per unit of risk. If you would invest  1,210  in CHINA BANK ADR20 on August 31, 2024 and sell it today you would earn a total of  170.00  from holding CHINA BANK ADR20 or generate 14.05% return on investment over 90 days.

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

CHINA BANK ADR20  vs.  Industrial and Commercial

CHINA BANK ADR20

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA CONBANK reported solid returns over the last few months and may actually be approaching a breakup point.

Industrial and Commercial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with CHINA CONBANK and Industrial

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

The idea behind CHINA BANK ADR20 and Industrial and Commercial 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.