Correlation Between Industrial and BANK OCHINA

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

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

Diversification Opportunities for Industrial and BANK OCHINA

0.68

Correlation Coefficient

Industrial  BANK OCHINA

Poor diversification

The 3 months correlation between Industrial and BANK is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and BANK OCHINA H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK OCHINA H and Industrial 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 Industrial and Commercial are associated (or correlated) with BANK OCHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK OCHINA H has no effect on the direction of Industrial i.e., Industrial and BANK OCHINA go up and down completely randomly.

Pair Corralation between Industrial and BANK OCHINA

Assuming the 90 days horizon Industrial and Commercial is expected to generate 1.25 times more return on investment than BANK OCHINA. However, Industrial is 1.25 times more volatile than BANK OCHINA H. It trades about 0.11 of its potential returns per unit of risk. BANK OCHINA H is currently generating about 0.12 per unit of risk. If you would invest  50.00  in Industrial and Commercial on September 23, 2024 and sell it today you would earn a total of  10.00  from holding Industrial and Commercial or generate 20.0% return on investment over 90 days.

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

Industrial and Commercial  vs.  BANK OCHINA H

Industrial and Commercial

Risk-Adjusted Performance

8 of 100

OK

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

BANK OCHINA H

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BANK OCHINA H are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BANK OCHINA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and BANK OCHINA

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

The idea behind Industrial and Commercial and BANK OCHINA H 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.