Correlation Between IND+COMMBK CHINA and BANK OCHINA

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

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

Diversification Opportunities for IND+COMMBK CHINA and BANK OCHINA

0.78

Correlation Coefficient

IND+COMMBK CHINA  BANK OCHINA

Poor diversification

The 3 months correlation between IND+COMMBK and BANK is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding INDCOMMBK CHINA ADR20 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 IND+COMMBK CHINA 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 INDCOMMBK CHINA ADR20 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 IND+COMMBK CHINA i.e., IND+COMMBK CHINA and BANK OCHINA go up and down completely randomly.

Pair Corralation between IND+COMMBK CHINA and BANK OCHINA

Assuming the 90 days trading horizon IND+COMMBK CHINA is expected to generate 1.93 times less return on investment than BANK OCHINA. In addition to that, IND+COMMBK CHINA is 1.06 times more volatile than BANK OCHINA H. It trades about 0.13 of its total potential returns per unit of risk. BANK OCHINA H is currently generating about 0.28 per unit of volatility. If you would invest  1,090  in BANK OCHINA H on October 5, 2024 and sell it today you would earn a total of  100.00  from holding BANK OCHINA H or generate 9.17% return on investment over 90 days.

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

INDCOMMBK CHINA ADR20  vs.  BANK OCHINA H

INDCOMMBK CHINA ADR20

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days INDCOMMBK CHINA ADR20 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile forward-looking signals, IND+COMMBK CHINA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BANK OCHINA H

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days BANK OCHINA H has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, BANK OCHINA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IND+COMMBK CHINA and BANK OCHINA

The main advantage of trading using opposite IND+COMMBK CHINA and BANK OCHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IND+COMMBK CHINA 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 INDCOMMBK CHINA ADR20 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.