Correlation Between LIFEWAY FOODS and Bank of China Limited

Can any of the company-specific risk be diversified away by investing in both LIFEWAY FOODS and Bank of China Limited 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 LIFEWAY FOODS and Bank of China Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LIFEWAY FOODS and Bank of China, you can compare the effects of market volatilities on LIFEWAY FOODS and Bank of China Limited 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 LIFEWAY FOODS with a short position of Bank of China Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of LIFEWAY FOODS and Bank of China Limited.

Diversification Opportunities for LIFEWAY FOODS and Bank of China Limited

-0.72

Correlation Coefficient

LIFEWAY FOODS  Bank of China Limited

Pay attention - limited upside

The 3 months correlation between LIFEWAY and Bank is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding LIFEWAY FOODS and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China Limited and LIFEWAY FOODS 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 LIFEWAY FOODS are associated (or correlated) with Bank of China Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of China Limited has no effect on the direction of LIFEWAY FOODS i.e., LIFEWAY FOODS and Bank of China Limited go up and down completely randomly.

Pair Corralation between LIFEWAY FOODS and Bank of China Limited

Assuming the 90 days trading horizon LIFEWAY FOODS is expected to under-perform the Bank of China Limited. But the stock apears to be less risky and, when comparing its historical volatility, LIFEWAY FOODS is 1.52 times less risky than Bank of China Limited. The stock trades about -0.01 of its potential returns per unit of risk. The Bank of China is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Bank of China on December 21, 2024 and sell it today you would earn a total of  19.00  from holding Bank of China or generate 52.78% return on investment over 90 days.

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

LIFEWAY FOODS  vs.  Bank of China

LIFEWAY FOODS

Risk-Adjusted Performance

Very Weak

Over the last 90 days LIFEWAY FOODS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LIFEWAY FOODS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Bank of China Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Bank of China Limited reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LIFEWAY FOODS and Bank of China Limited

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

The idea behind LIFEWAY FOODS and Bank of China 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.