Correlation Between China Everbright and Bank of the Philippine Is
Can any of the company-specific risk be diversified away by investing in both China Everbright and Bank of the Philippine Is 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 Everbright and Bank of the Philippine Is into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Everbright Bank and Bank of the, you can compare the effects of market volatilities on China Everbright and Bank of the Philippine Is 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 Everbright with a short position of Bank of the Philippine Is. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Everbright and Bank of the Philippine Is.
Diversification Opportunities for China Everbright and Bank of the Philippine Is
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between China and Bank is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright Bank and Bank of the in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of the Philippine Is and China Everbright 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 Everbright Bank are associated (or correlated) with Bank of the Philippine Is. 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 the Philippine Is has no effect on the direction of China Everbright i.e., China Everbright and Bank of the Philippine Is go up and down completely randomly.
Pair Corralation between China Everbright and Bank of the Philippine Is
Assuming the 90 days horizon China Everbright Bank is expected to generate 0.89 times more return on investment than Bank of the Philippine Is. However, China Everbright Bank is 1.12 times less risky than Bank of the Philippine Is. It trades about 0.05 of its potential returns per unit of risk. Bank of the is currently generating about 0.04 per unit of risk. If you would invest 20.00 in China Everbright Bank on August 24, 2024 and sell it today you would earn a total of 19.00 from holding China Everbright Bank or generate 95.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 93.74% |
| Values | Daily Returns |
China Everbright Bank vs. Bank of the
Performance |
| Timeline |
| China Everbright Bank |
| Bank of the Philippine Is |
China Everbright and Bank of the Philippine Is Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Everbright and Bank of the Philippine Is
The main advantage of trading using opposite China Everbright and Bank of the Philippine Is positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Everbright position performs unexpectedly, Bank of the Philippine Is 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 the Philippine Is will offset losses from the drop in Bank of the Philippine Is' long position.The idea behind China Everbright Bank and Bank of the 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.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 Global Correlations module to find global opportunities by holding instruments from different markets.
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