Correlation Between China Communications and Bank of America
Can any of the company-specific risk be diversified away by investing in both China Communications and Bank of America 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 Communications and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Communications Services and Verizon Communications, you can compare the effects of market volatilities on China Communications and Bank of America 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 Communications with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Communications and Bank of America.
Diversification Opportunities for China Communications and Bank of America
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between China and Bank is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Services and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and China Communications 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 Communications Services are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of China Communications i.e., China Communications and Bank of America go up and down completely randomly.
Pair Corralation between China Communications and Bank of America
Assuming the 90 days horizon China Communications is expected to generate 38.77 times less return on investment than Bank of America. In addition to that, China Communications is 1.25 times more volatile than Verizon Communications. It trades about 0.01 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.33 per unit of volatility. If you would invest 3,858 in Verizon Communications on September 1, 2024 and sell it today you would earn a total of 342.00 from holding Verizon Communications or generate 8.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
China Communications Services vs. Verizon Communications
Performance |
| Timeline |
| China Communications |
| Verizon Communications |
China Communications and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Communications and Bank of America
The main advantage of trading using opposite China Communications and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Communications position performs unexpectedly, Bank of America 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 America will offset losses from the drop in Bank of America's long position.| China Communications vs. ATT Inc | China Communications vs. Deutsche Telekom AG | China Communications vs. Superior Plus Corp | China Communications vs. NMI Holdings |
| Bank of America vs. Direct Line Insurance | Bank of America vs. Harmony Gold Mining | Bank of America vs. The Hanover Insurance | Bank of America vs. Jacquet Metal Service |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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