Correlation Between CHINA SOUTHN and Bank of China Limited

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

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

Diversification Opportunities for CHINA SOUTHN and Bank of China Limited

0.45

Correlation Coefficient

CHINA SOUTHN  Bank of China Limited

Very weak diversification

The 3 months correlation between CHINA and Bank is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding CHINA SOUTHN AIR H and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China Limited and CHINA SOUTHN 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 CHINA SOUTHN AIR H are associated (or correlated) with Bank of China Limited. 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 Limited has no effect on the direction of CHINA SOUTHN i.e., CHINA SOUTHN and Bank of China Limited go up and down completely randomly.

Pair Corralation between CHINA SOUTHN and Bank of China Limited

Assuming the 90 days trading horizon CHINA SOUTHN AIR H is expected to under-perform the Bank of China Limited. In addition to that, CHINA SOUTHN is 1.01 times more volatile than Bank of China. It trades about -0.17 of its total potential returns per unit of risk. Bank of China is currently generating about 0.21 per unit of volatility. If you would invest  46.00  in Bank of China on October 11, 2024 and sell it today you would earn a total of  4.00  from holding Bank of China or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

CHINA SOUTHN AIR H   vs.  Bank of China

CHINA SOUTHN AIR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bank of China Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 8 (%) 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.

Pair Trading with CHINA SOUTHN and Bank of China Limited

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

The idea behind CHINA SOUTHN AIR H 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.