Correlation Between Bank of America and China Communications
Can any of the company-specific risk be diversified away by investing in both Bank of America and China Communications 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 America and China Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and China Communications Services, you can compare the effects of market volatilities on Bank of America and China Communications 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 America with a short position of China Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and China Communications.
Diversification Opportunities for Bank of America and China Communications
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and China is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and China Communications Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Communications and Bank of America 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 Verizon Communications are associated (or correlated) with China Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Communications has no effect on the direction of Bank of America i.e., Bank of America and China Communications go up and down completely randomly.
Pair Corralation between Bank of America and China Communications
Assuming the 90 days horizon Bank of America is expected to generate 11.82 times less return on investment than China Communications. But when comparing it to its historical volatility, Verizon Communications is 4.5 times less risky than China Communications. It trades about 0.03 of its potential returns per unit of risk. China Communications Services is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 8.62 in China Communications Services on November 5, 2024 and sell it today you would earn a total of 44.38 from holding China Communications Services or generate 514.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. China Communications Services
Performance |
| Timeline |
| Verizon Communications |
| China Communications |
Bank of America and China Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and China Communications
The main advantage of trading using opposite Bank of America and China Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, China Communications 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 China Communications will offset losses from the drop in China Communications' long position.| Bank of America vs. GEAR4MUSIC LS 10 | Bank of America vs. ASURE SOFTWARE | Bank of America vs. Alfa Financial Software | Bank of America vs. Magic Software Enterprises |
| China Communications vs. Tokyu Construction Co | China Communications vs. H2O Retailing | China Communications vs. Burlington Stores | China Communications vs. Fast Retailing Co |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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