Correlation Between Bank of China and China Construction
Can any of the company-specific risk be diversified away by investing in both Bank of China and China Construction 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 China Construction 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 China Construction Bank, you can compare the effects of market volatilities on Bank of China and China Construction 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 China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of China and China Construction.
Diversification Opportunities for Bank of China and China Construction
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and China is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank 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 China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Bank of China i.e., Bank of China and China Construction go up and down completely randomly.
Pair Corralation between Bank of China and China Construction
Assuming the 90 days horizon Bank of China is expected to under-perform the China Construction. In addition to that, Bank of China is 2.22 times more volatile than China Construction Bank. It trades about -0.06 of its total potential returns per unit of risk. China Construction Bank is currently generating about -0.1 per unit of volatility. If you would invest 1,561 in China Construction Bank on August 27, 2024 and sell it today you would lose (61.00) from holding China Construction Bank or give up 3.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of China vs. China Construction Bank
Performance |
| Timeline |
| Bank of China |
| China Construction Bank |
Bank of China and China Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of China and China Construction
The main advantage of trading using opposite Bank of China and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of China position performs unexpectedly, China Construction 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 Construction will offset losses from the drop in China Construction's long position.| Bank of China vs. ANZ Group Holdings | Bank of China vs. Agricultural Bank | Bank of China vs. Industrial and Commercial | Bank of China vs. Bank of America |
| China Construction vs. ANZ Group Holdings | China Construction vs. Agricultural Bank | China Construction vs. Industrial and Commercial | China Construction vs. Bank of America |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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