Correlation Between Ningbo Thermal and Bank of China

Can any of the company-specific risk be diversified away by investing in both Ningbo Thermal 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 Ningbo Thermal 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 Ningbo Thermal Power and Bank of China, you can compare the effects of market volatilities on Ningbo Thermal 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 Ningbo Thermal with a short position of Bank of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Thermal and Bank of China.

Diversification Opportunities for Ningbo Thermal and Bank of China

0.69

Correlation Coefficient

Ningbo Thermal  Bank of China

Poor diversification

The 3 months correlation between Ningbo and Bank is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Thermal Power 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 Ningbo Thermal 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 Ningbo Thermal Power 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 Ningbo Thermal i.e., Ningbo Thermal and Bank of China go up and down completely randomly.

Pair Corralation between Ningbo Thermal and Bank of China

Assuming the 90 days trading horizon Ningbo Thermal Power is expected to generate 1.39 times more return on investment than Bank of China. However, Ningbo Thermal is 1.39 times more volatile than Bank of China. It trades about 0.23 of its potential returns per unit of risk. Bank of China is currently generating about 0.15 per unit of risk. If you would invest  326.00  in Ningbo Thermal Power on September 13, 2024 and sell it today you would earn a total of  93.00  from holding Ningbo Thermal Power or generate 28.53% return on investment over 90 days.

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

Ningbo Thermal Power  vs.  Bank of China

Ningbo Thermal Power

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Thermal Power are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Thermal 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

OK

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 Ningbo Thermal and Bank of China

The main advantage of trading using opposite Ningbo Thermal and Bank of China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ningbo Thermal 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 Ningbo Thermal Power 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.