Correlation Between CHINA BANK and IND+COMMBK CHINA
Can any of the company-specific risk be diversified away by investing in both CHINA BANK and IND+COMMBK 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 CHINA BANK and IND+COMMBK CHINA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHINA BANK ADR20 and INDCOMMBK CHINA ADR20, you can compare the effects of market volatilities on CHINA BANK and IND+COMMBK 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 CHINA BANK with a short position of IND+COMMBK CHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA BANK and IND+COMMBK CHINA.
Diversification Opportunities for CHINA BANK and IND+COMMBK CHINA
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between CHINA and IND+COMMBK is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CHINA BANK ADR20 and INDCOMMBK CHINA ADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDCOMMBK CHINA ADR20 and CHINA 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 CHINA BANK ADR20 are associated (or correlated) with IND+COMMBK CHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDCOMMBK CHINA ADR20 has no effect on the direction of CHINA BANK i.e., CHINA BANK and IND+COMMBK CHINA go up and down completely randomly.
Pair Corralation between CHINA BANK and IND+COMMBK CHINA
Assuming the 90 days trading horizon CHINA BANK is expected to generate 8.68 times less return on investment than IND+COMMBK CHINA. But when comparing it to its historical volatility, CHINA BANK ADR20 is 1.09 times less risky than IND+COMMBK CHINA. It trades about 0.02 of its potential returns per unit of risk. INDCOMMBK CHINA ADR20 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 1,131 in INDCOMMBK CHINA ADR20 on October 20, 2024 and sell it today you would earn a total of 79.00 from holding INDCOMMBK CHINA ADR20 or generate 6.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
CHINA BANK ADR20 vs. INDCOMMBK CHINA ADR20
Performance |
| Timeline |
| CHINA BANK ADR20 |
| INDCOMMBK CHINA ADR20 |
CHINA BANK and IND+COMMBK CHINA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHINA BANK and IND+COMMBK CHINA
The main advantage of trading using opposite CHINA BANK and IND+COMMBK CHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA BANK position performs unexpectedly, IND+COMMBK 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 IND+COMMBK CHINA will offset losses from the drop in IND+COMMBK CHINA's long position.| CHINA BANK vs. INDCOMMBK CHINA ADR20 | CHINA BANK vs. Industrial and Commercial | CHINA BANK vs. AGRICULTBK HADR25 YC | CHINA BANK vs. BANK OCHINA H |
| IND+COMMBK CHINA vs. Inspire Medical Systems | IND+COMMBK CHINA vs. MEDICAL FACILITIES NEW | IND+COMMBK CHINA vs. Air New Zealand | IND+COMMBK CHINA vs. IMAGIN MEDICAL INC |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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