Correlation Between Bank of China and Office Properties

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

Diversification Opportunities for Bank of China and Office Properties

-0.47

Correlation Coefficient

Bank of China  Office Properties

Very good diversification

The 3 months correlation between Bank and Office is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Office Properties Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Office Properties Income and Bank of China 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 Office Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Office Properties Income has no effect on the direction of Bank of China i.e., Bank of China and Office Properties go up and down completely randomly.

Pair Corralation between Bank of China and Office Properties

Assuming the 90 days horizon Bank of China is expected to generate 15.77 times less return on investment than Office Properties. But when comparing it to its historical volatility, Bank of China is 5.66 times less risky than Office Properties. It trades about 0.06 of its potential returns per unit of risk. Office Properties Income is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  110.00  in Office Properties Income on September 5, 2024 and sell it today you would earn a total of  38.00  from holding Office Properties Income or generate 34.55% return on investment over 90 days.

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

Bank of China  vs.  Office Properties Income

Bank of China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Bank of China reported solid returns over the last few months and may actually be approaching a breakup point.

Office Properties Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Office Properties Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Office Properties 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 and Office Properties

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

The idea behind Bank of China and Office Properties Income 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.