Correlation Between BANK OF CHINA and UmweltBank

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

Diversification Opportunities for BANK OF CHINA and UmweltBank

0.07

Correlation Coefficient

BANK OF CHINA  UmweltBank

Significant diversification

The 3 months correlation between BANK and UmweltBank is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding BANK OF CHINA and UmweltBank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UmweltBank AG 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 UmweltBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UmweltBank AG has no effect on the direction of BANK OF CHINA i.e., BANK OF CHINA and UmweltBank go up and down completely randomly.

Pair Corralation between BANK OF CHINA and UmweltBank

Assuming the 90 days trading horizon BANK OF CHINA is expected to generate 2.56 times more return on investment than UmweltBank. However, BANK OF CHINA is 2.56 times more volatile than UmweltBank AG. It trades about 0.15 of its potential returns per unit of risk. UmweltBank AG is currently generating about 0.05 per unit of risk. 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

BANK OF CHINA  vs.  UmweltBank AG

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.

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.

Pair Trading with BANK OF CHINA and UmweltBank

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

The idea behind BANK OF CHINA and UmweltBank AG 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.