Correlation Between Baoshan Iron and Bank of Communications

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

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

Diversification Opportunities for Baoshan Iron and Bank of Communications

0.72

Correlation Coefficient

Baoshan Iron  Bank of Communications

Poor diversification

The 3 months correlation between Baoshan and Bank is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Bank of Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Communications and Baoshan Iron 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 Baoshan Iron Steel are associated (or correlated) with Bank of Communications. 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 Communications has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Bank of Communications go up and down completely randomly.

Pair Corralation between Baoshan Iron and Bank of Communications

Assuming the 90 days trading horizon Baoshan Iron is expected to generate 1.68 times less return on investment than Bank of Communications. In addition to that, Baoshan Iron is 1.44 times more volatile than Bank of Communications. It trades about 0.02 of its total potential returns per unit of risk. Bank of Communications is currently generating about 0.05 per unit of volatility. If you would invest  740.00  in Bank of Communications on September 29, 2024 and sell it today you would earn a total of  31.00  from holding Bank of Communications or generate 4.19% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Bank of Communications

Baoshan Iron Steel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Baoshan Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bank of Communications

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Baoshan Iron and Bank of Communications

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

The idea behind Baoshan Iron Steel and Bank of Communications 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.

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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.