Correlation Between TFS FINANCIAL and Bank of China

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

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

Diversification Opportunities for TFS FINANCIAL and Bank of China

0.33

Correlation Coefficient

TFS FINANCIAL  Bank of China

Weak diversification

The 3 months correlation between TFS and Bank is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding TFS FINANCIAL and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China and TFS FINANCIAL 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 TFS FINANCIAL are associated (or correlated) with Bank of China. 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 has no effect on the direction of TFS FINANCIAL i.e., TFS FINANCIAL and Bank of China go up and down completely randomly.

Pair Corralation between TFS FINANCIAL and Bank of China

Assuming the 90 days trading horizon TFS FINANCIAL is expected to under-perform the Bank of China. But the stock apears to be less risky and, when comparing its historical volatility, TFS FINANCIAL is 2.05 times less risky than Bank of China. The stock trades about -0.14 of its potential returns per unit of risk. The Bank of China is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Bank of China on September 19, 2024 and sell it today you would earn a total of  2.00  from holding Bank of China or generate 4.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

TFS FINANCIAL  vs.  Bank of China

TFS FINANCIAL

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TFS FINANCIAL are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TFS FINANCIAL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank of China

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bank of China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TFS FINANCIAL and Bank of China

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

The idea behind TFS FINANCIAL 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.