Correlation Between Bank of China Ltd ADR and Banco De

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

Diversification Opportunities for Bank of China Ltd ADR and Banco De

-0.07

Correlation Coefficient

Bank of China Ltd ADR  Banco De

Good diversification

The 3 months correlation between Bank and Banco is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Banco de Sabadell in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco de Sabadell and Bank of China Ltd ADR 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 Banco De. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco de Sabadell has no effect on the direction of Bank of China Ltd ADR i.e., Bank of China Ltd ADR and Banco De go up and down completely randomly.

Pair Corralation between Bank of China Ltd ADR and Banco De

Assuming the 90 days horizon Bank of China is expected to generate 0.62 times more return on investment than Banco De. However, Bank of China is 1.6 times less risky than Banco De. It trades about 0.05 of its potential returns per unit of risk. Banco de Sabadell is currently generating about -0.01 per unit of risk. If you would invest  1,104  in Bank of China on September 4, 2024 and sell it today you would earn a total of  63.00  from holding Bank of China or generate 5.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Bank of China  vs.  Banco de Sabadell

Bank of China Ltd ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent technical indicators, Bank of China Ltd ADR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Banco de Sabadell

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco de Sabadell has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Banco De is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank of China Ltd ADR and Banco De

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

The idea behind Bank of China and Banco de Sabadell 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.