Correlation Between SPORT LISBOA and Bank of China Limited

Can any of the company-specific risk be diversified away by investing in both SPORT LISBOA 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 SPORT LISBOA 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 SPORT LISBOA E and Bank of China, you can compare the effects of market volatilities on SPORT LISBOA 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 SPORT LISBOA with a short position of Bank of China Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPORT LISBOA and Bank of China Limited.

Diversification Opportunities for SPORT LISBOA and Bank of China Limited

-0.23

Correlation Coefficient

SPORT LISBOA  Bank of China Limited

Very good diversification

The 3 months correlation between SPORT and Bank is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding SPORT LISBOA E 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 SPORT LISBOA 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 SPORT LISBOA E 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 SPORT LISBOA i.e., SPORT LISBOA and Bank of China Limited go up and down completely randomly.

Pair Corralation between SPORT LISBOA and Bank of China Limited

Assuming the 90 days horizon SPORT LISBOA is expected to generate 8.7 times less return on investment than Bank of China Limited. But when comparing it to its historical volatility, SPORT LISBOA E is 2.53 times less risky than Bank of China Limited. It trades about 0.08 of its potential returns per unit of risk. Bank of China is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Bank of China on October 23, 2024 and sell it today you would earn a total of  12.00  from holding Bank of China or generate 33.33% return on investment over 90 days.

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

SPORT LISBOA E  vs.  Bank of China

SPORT LISBOA E

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPORT LISBOA E are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SPORT LISBOA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bank of China Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile 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 SPORT LISBOA and Bank of China Limited

The main advantage of trading using opposite SPORT LISBOA and Bank of China Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPORT LISBOA 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 SPORT LISBOA E 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.