Correlation Between Bank of China Limited and WESTERN DIGITAL
Can any of the company-specific risk be diversified away by investing in both Bank of China Limited and WESTERN DIGITAL 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 WESTERN DIGITAL 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 WESTERN DIGITAL, you can compare the effects of market volatilities on Bank of China Limited and WESTERN DIGITAL 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 WESTERN DIGITAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of China Limited and WESTERN DIGITAL.
Diversification Opportunities for Bank of China Limited and WESTERN DIGITAL
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and WESTERN is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL 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 WESTERN DIGITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN DIGITAL has no effect on the direction of Bank of China Limited i.e., Bank of China Limited and WESTERN DIGITAL go up and down completely randomly.
Pair Corralation between Bank of China Limited and WESTERN DIGITAL
Assuming the 90 days horizon Bank of China is expected to under-perform the WESTERN DIGITAL. But the stock apears to be less risky and, when comparing its historical volatility, Bank of China is 1.37 times less risky than WESTERN DIGITAL. The stock trades about -0.05 of its potential returns per unit of risk. The WESTERN DIGITAL is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 6,193 in WESTERN DIGITAL on August 31, 2024 and sell it today you would earn a total of 596.00 from holding WESTERN DIGITAL or generate 9.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Bank of China vs. WESTERN DIGITAL
Performance |
| Timeline |
| Bank of China Limited |
| WESTERN DIGITAL |
Bank of China Limited and WESTERN DIGITAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of China Limited and WESTERN DIGITAL
The main advantage of trading using opposite Bank of China Limited and WESTERN DIGITAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of China Limited position performs unexpectedly, WESTERN DIGITAL 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 WESTERN DIGITAL will offset losses from the drop in WESTERN DIGITAL's long position.| Bank of China Limited vs. Verizon Communications | Bank of China Limited vs. MTI WIRELESS EDGE | Bank of China Limited vs. Hanison Construction Holdings | Bank of China Limited vs. SBA Communications Corp |
| WESTERN DIGITAL vs. PRECISION DRILLING P | WESTERN DIGITAL vs. Zijin Mining Group | WESTERN DIGITAL vs. MCEWEN MINING INC | WESTERN DIGITAL vs. ON SEMICONDUCTOR |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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