Correlation Between Community West and BOC Hong

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

By analyzing existing cross correlation between Community West Bancshares and BOC Hong Kong, you can compare the effects of market volatilities on Community West and BOC Hong 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 Community West with a short position of BOC Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and BOC Hong.

Diversification Opportunities for Community West and BOC Hong

-0.48

Correlation Coefficient

Community West  BOC Hong

Very good diversification

The 3 months correlation between Community and BOC is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and BOC Hong Kong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BOC Hong Kong and Community West 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 Community West Bancshares are associated (or correlated) with BOC Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BOC Hong Kong has no effect on the direction of Community West i.e., Community West and BOC Hong go up and down completely randomly.

Pair Corralation between Community West and BOC Hong

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the BOC Hong. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.29 times less risky than BOC Hong. The stock trades about -0.03 of its potential returns per unit of risk. The BOC Hong Kong is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,594  in BOC Hong Kong on December 29, 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Community West Bancshares  vs.  BOC Hong Kong

Community West Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community West Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Community West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Community West and BOC Hong

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

The idea behind Community West Bancshares and BOC Hong Kong 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.