Correlation Between Aozora Bank and Bank of China
Can any of the company-specific risk be diversified away by investing in both Aozora Bank and Bank of China 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 Aozora Bank and Bank of China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aozora Bank and Bank of China, you can compare the effects of market volatilities on Aozora Bank and Bank of China 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 Aozora Bank with a short position of Bank of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aozora Bank and Bank of China.
Diversification Opportunities for Aozora Bank and Bank of China
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Aozora and Bank is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China and Aozora Bank 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 Aozora Bank are associated (or correlated) with Bank of China. 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 has no effect on the direction of Aozora Bank i.e., Aozora Bank and Bank of China go up and down completely randomly.
Pair Corralation between Aozora Bank and Bank of China
Assuming the 90 days horizon Aozora Bank is expected to under-perform the Bank of China. But the stock apears to be less risky and, when comparing its historical volatility, Aozora Bank is 2.8 times less risky than Bank of China. The stock trades about 0.0 of its potential returns per unit of risk. The Bank of China is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 16.00 in Bank of China on September 4, 2024 and sell it today you would earn a total of 28.00 from holding Bank of China or generate 175.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aozora Bank vs. Bank of China
Performance |
| Timeline |
| Aozora Bank |
| Bank of China |
Aozora Bank and Bank of China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aozora Bank and Bank of China
The main advantage of trading using opposite Aozora Bank and Bank of China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aozora Bank position performs unexpectedly, Bank of China 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 will offset losses from the drop in Bank of China's long position.The idea behind Aozora Bank 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.| Bank of China vs. GOODYEAR T RUBBER | Bank of China vs. X FAB Silicon Foundries | Bank of China vs. Sumitomo Rubber Industries | Bank of China vs. Vishay Intertechnology |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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