Correlation Between Bank of China Limited and Legend Holdings
Can any of the company-specific risk be diversified away by investing in both Bank of China Limited and Legend Holdings 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 Limited and Legend Holdings 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 Legend Holdings, you can compare the effects of market volatilities on Bank of China Limited and Legend Holdings 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 Limited with a short position of Legend Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of China Limited and Legend Holdings.
Diversification Opportunities for Bank of China Limited and Legend Holdings
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Legend is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Legend Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Holdings and Bank of China Limited 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 Legend Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Holdings has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and Legend Holdings go up and down completely randomly.
Pair Corralation between Bank of China Limited and Legend Holdings
Assuming the 90 days horizon Bank of China Limited is expected to generate 5.78 times less return on investment than Legend Holdings. But when comparing it to its historical volatility, Bank of China is 1.93 times less risky than Legend Holdings. It trades about 0.05 of its potential returns per unit of risk. Legend Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 62.00 in Legend Holdings on September 2, 2024 and sell it today you would earn a total of 22.00 from holding Legend Holdings or generate 35.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of China vs. Legend Holdings
Performance |
| Timeline |
| Bank of China Limited |
| Legend Holdings |
Bank of China Limited and Legend Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of China Limited and Legend Holdings
The main advantage of trading using opposite Bank of China Limited and Legend Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of China Limited position performs unexpectedly, Legend Holdings 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 Legend Holdings will offset losses from the drop in Legend Holdings' long position.| Bank of China Limited vs. Superior Plus Corp | Bank of China Limited vs. NMI Holdings | Bank of China Limited vs. Origin Agritech | Bank of China Limited vs. SIVERS SEMICONDUCTORS AB |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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