Correlation Between Guosheng Financial and Bank of China

Can any of the company-specific risk be diversified away by investing in both Guosheng Financial and Bank of 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 Guosheng Financial and Bank of China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guosheng Financial Holding and Bank of China, you can compare the effects of market volatilities on Guosheng Financial and Bank of 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 Guosheng Financial with a short position of Bank of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guosheng Financial and Bank of China.

Diversification Opportunities for Guosheng Financial and Bank of China

0.76

Correlation Coefficient

Guosheng Financial  Bank of China

Poor diversification

The 3 months correlation between Guosheng and Bank is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Guosheng Financial Holding and Bank of China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of China and Guosheng Financial 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 Guosheng Financial Holding are associated (or correlated) with Bank of China. 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 China has no effect on the direction of Guosheng Financial i.e., Guosheng Financial and Bank of China go up and down completely randomly.

Pair Corralation between Guosheng Financial and Bank of China

Assuming the 90 days trading horizon Guosheng Financial Holding is expected to generate 4.82 times more return on investment than Bank of China. However, Guosheng Financial is 4.82 times more volatile than Bank of China. It trades about 0.38 of its potential returns per unit of risk. Bank of China is currently generating about 0.35 per unit of risk. If you would invest  1,202  in Guosheng Financial Holding on September 14, 2024 and sell it today you would earn a total of  538.00  from holding Guosheng Financial Holding or generate 44.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Guosheng Financial Holding  vs.  Bank of China

Guosheng Financial

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guosheng Financial Holding are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guosheng Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Bank of China

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guosheng Financial and Bank of China

The main advantage of trading using opposite Guosheng Financial and Bank of China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guosheng Financial position performs unexpectedly, Bank of 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 Bank of China will offset losses from the drop in Bank of China's long position.

The idea behind Guosheng Financial Holding and Bank of China 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.