Correlation Between CHINA CONBANK and SSE PLC

Can any of the company-specific risk be diversified away by investing in both CHINA CONBANK and SSE PLC 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 SSE PLC 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 SSE PLC ADR, you can compare the effects of market volatilities on CHINA CONBANK and SSE PLC 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA CONBANK and SSE PLC.

Diversification Opportunities for CHINA CONBANK and SSE PLC

-0.7

Correlation Coefficient

CHINA CONBANK  SSE PLC

Excellent diversification

The 3 months correlation between CHINA and SSE is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding CHINA BANK ADR20 and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of CHINA CONBANK i.e., CHINA CONBANK and SSE PLC go up and down completely randomly.

Pair Corralation between CHINA CONBANK and SSE PLC

Assuming the 90 days trading horizon CHINA BANK ADR20 is expected to generate 1.49 times more return on investment than SSE PLC. However, CHINA CONBANK is 1.49 times more volatile than SSE PLC ADR. It trades about 0.06 of its potential returns per unit of risk. SSE PLC ADR is currently generating about 0.02 per unit of risk. If you would invest  945.00  in CHINA BANK ADR20 on October 4, 2024 and sell it today you would earn a total of  605.00  from holding CHINA BANK ADR20 or generate 64.02% return on investment over 90 days.

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

CHINA BANK ADR20  vs.  SSE PLC ADR

CHINA BANK ADR20

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 10 (%) 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.

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CHINA CONBANK and SSE PLC

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

The idea behind CHINA BANK ADR20 and SSE PLC ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.