Correlation Between Bank of China and YLZ Information

Can any of the company-specific risk be diversified away by investing in both Bank of China and YLZ Information 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 YLZ Information 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 YLZ Information Tech, you can compare the effects of market volatilities on Bank of China and YLZ Information 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 YLZ Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of China and YLZ Information.

Diversification Opportunities for Bank of China and YLZ Information

0.64

Correlation Coefficient

Bank of China  YLZ Information

Poor diversification

The 3 months correlation between Bank and YLZ is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and YLZ Information Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YLZ Information Tech 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 YLZ Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YLZ Information Tech has no effect on the direction of Bank of China i.e., Bank of China and YLZ Information go up and down completely randomly.

Pair Corralation between Bank of China and YLZ Information

Assuming the 90 days trading horizon Bank of China is expected to generate 3.03 times less return on investment than YLZ Information. But when comparing it to its historical volatility, Bank of China is 2.73 times less risky than YLZ Information. It trades about 0.14 of its potential returns per unit of risk. YLZ Information Tech is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  272.00  in YLZ Information Tech on September 23, 2024 and sell it today you would earn a total of  103.00  from holding YLZ Information Tech or generate 37.87% 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.  YLZ Information Tech

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

YLZ Information Tech

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in YLZ Information Tech are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, YLZ Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of China and YLZ Information

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

The idea behind Bank of China and YLZ Information Tech 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.