Correlation Between Bank of China Limited and Bridgestone

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

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

Diversification Opportunities for Bank of China Limited and Bridgestone

-0.29

Correlation Coefficient

Bank of China Limited  Bridgestone

Very good diversification

The 3 months correlation between Bank and Bridgestone is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Bridgestone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone and Bank of China Limited 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 Bank of China are associated (or correlated) with Bridgestone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and Bridgestone go up and down completely randomly.

Pair Corralation between Bank of China Limited and Bridgestone

Assuming the 90 days horizon Bank of China is expected to generate 1.95 times more return on investment than Bridgestone. However, Bank of China Limited is 1.95 times more volatile than Bridgestone. It trades about 0.12 of its potential returns per unit of risk. Bridgestone is currently generating about -0.03 per unit of risk. If you would invest  30.00  in Bank of China on October 20, 2024 and sell it today you would earn a total of  18.00  from holding Bank of China or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Bank of China  vs.  Bridgestone

Bank of China Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 11 (%) 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.

Bridgestone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bridgestone is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank of China Limited and Bridgestone

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

The idea behind Bank of China and Bridgestone 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.