Correlation Between UmweltBank and BANK OF CHINA

Can any of the company-specific risk be diversified away by investing in both UmweltBank 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 UmweltBank 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 UmweltBank AG and BANK OF CHINA, you can compare the effects of market volatilities on UmweltBank 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 UmweltBank with a short position of BANK OF CHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of UmweltBank and BANK OF CHINA.

Diversification Opportunities for UmweltBank and BANK OF CHINA

0.07

Correlation Coefficient

UmweltBank  BANK OF CHINA

Significant diversification

The 3 months correlation between UmweltBank and BANK is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding UmweltBank AG 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 UmweltBank 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 UmweltBank AG 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 UmweltBank i.e., UmweltBank and BANK OF CHINA go up and down completely randomly.

Pair Corralation between UmweltBank and BANK OF CHINA

Assuming the 90 days trading horizon UmweltBank is expected to generate 7.58 times less return on investment than BANK OF CHINA. But when comparing it to its historical volatility, UmweltBank AG is 2.56 times less risky than BANK OF CHINA. It trades about 0.05 of its potential returns per unit of risk. BANK OF CHINA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  33.00  in BANK OF CHINA on October 25, 2024 and sell it today you would earn a total of  15.00  from holding BANK OF CHINA or generate 45.45% return on investment over 90 days.

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

UmweltBank AG  vs.  BANK OF CHINA

UmweltBank AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UmweltBank AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, UmweltBank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

BANK OF CHINA

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. In spite of comparatively unsteady basic indicators, BANK OF CHINA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UmweltBank and BANK OF CHINA

The main advantage of trading using opposite UmweltBank and BANK OF CHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UmweltBank 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 UmweltBank AG 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.