Correlation Between Bank of East and BOC Hong

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

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

Diversification Opportunities for Bank of East and BOC Hong

0.63

Correlation Coefficient

Bank of East  BOC Hong

Poor diversification

The 3 months correlation between Bank and BOC is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bank of East and BOC Hong Kong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BOC Hong Kong and Bank of East 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 East are associated (or correlated) with BOC Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BOC Hong Kong has no effect on the direction of Bank of East i.e., Bank of East and BOC Hong go up and down completely randomly.

Pair Corralation between Bank of East and BOC Hong

Assuming the 90 days horizon Bank of East is expected to under-perform the BOC Hong. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank of East is 1.78 times less risky than BOC Hong. The pink sheet trades about -0.03 of its potential returns per unit of risk. The BOC Hong Kong is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  6,630  in BOC Hong Kong on September 12, 2024 and sell it today you would earn a total of  84.00  from holding BOC Hong Kong or generate 1.27% return on investment over 90 days.

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

Bank of East  vs.  BOC Hong Kong

Bank of East

Risk-Adjusted Performance

0 of 100

Very Weak

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

BOC Hong Kong

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BOC Hong Kong are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, BOC Hong showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of East and BOC Hong

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

The idea behind Bank of East and BOC Hong Kong 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.