Correlation Between Bank of China and Huayi Brothers

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

Diversification Opportunities for Bank of China and Huayi Brothers

0.7

Correlation Coefficient

Bank of China  Huayi Brothers

Poor diversification

The 3 months correlation between Bank and Huayi is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Huayi Brothers Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huayi Brothers Media and Bank of China 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 Huayi Brothers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huayi Brothers Media has no effect on the direction of Bank of China i.e., Bank of China and Huayi Brothers go up and down completely randomly.

Pair Corralation between Bank of China and Huayi Brothers

Assuming the 90 days trading horizon Bank of China is expected to generate 5.96 times less return on investment than Huayi Brothers. But when comparing it to its historical volatility, Bank of China is 4.06 times less risky than Huayi Brothers. It trades about 0.14 of its potential returns per unit of risk. Huayi Brothers Media is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  194.00  in Huayi Brothers Media on September 14, 2024 and sell it today you would earn a total of  161.00  from holding Huayi Brothers Media or generate 82.99% return on investment over 90 days.

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

Bank of China  vs.  Huayi Brothers Media

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.

Huayi Brothers Media

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Huayi Brothers Media are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huayi Brothers sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of China and Huayi Brothers

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

The idea behind Bank of China and Huayi Brothers Media 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.