Correlation Between Bank of China Limited and NIPPON MEAT

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

Diversification Opportunities for Bank of China Limited and NIPPON MEAT

-0.76

Correlation Coefficient

Bank of China Limited  NIPPON MEAT

Pay attention - limited upside

The 3 months correlation between Bank and NIPPON is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and NIPPON MEAT PACKERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON MEAT PACKERS 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 NIPPON MEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIPPON MEAT PACKERS has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and NIPPON MEAT go up and down completely randomly.

Pair Corralation between Bank of China Limited and NIPPON MEAT

Assuming the 90 days horizon Bank of China is expected to generate 1.29 times more return on investment than NIPPON MEAT. However, Bank of China Limited is 1.29 times more volatile than NIPPON MEAT PACKERS. It trades about 0.05 of its potential returns per unit of risk. NIPPON MEAT PACKERS is currently generating about -0.03 per unit of risk. If you would invest  41.00  in Bank of China on August 31, 2024 and sell it today you would earn a total of  2.00  from holding Bank of China or generate 4.88% return on investment over 90 days.

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

Bank of China  vs.  NIPPON MEAT PACKERS

Bank of China Limited

Risk-Adjusted Performance

3 of 100

Insignificant

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

NIPPON MEAT PACKERS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIPPON MEAT PACKERS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, NIPPON MEAT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank of China Limited and NIPPON MEAT

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

The idea behind Bank of China and NIPPON MEAT PACKERS 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.