Correlation Between CHINA EDUCATION and Bank of America

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

By analyzing existing cross correlation between CHINA EDUCATION GROUP and Verizon Communications, you can compare the effects of market volatilities on CHINA EDUCATION and Bank of America 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 CHINA EDUCATION with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA EDUCATION and Bank of America.

Diversification Opportunities for CHINA EDUCATION and Bank of America

-0.25

Correlation Coefficient

CHINA EDUCATION  Bank of America

Very good diversification

The 3 months correlation between CHINA and Bank is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding CHINA EDUCATION GROUP and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and CHINA EDUCATION 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 CHINA EDUCATION GROUP are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of CHINA EDUCATION i.e., CHINA EDUCATION and Bank of America go up and down completely randomly.

Pair Corralation between CHINA EDUCATION and Bank of America

Assuming the 90 days horizon CHINA EDUCATION GROUP is expected to generate 4.03 times more return on investment than Bank of America. However, CHINA EDUCATION is 4.03 times more volatile than Verizon Communications. It trades about 0.03 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.08 per unit of risk. If you would invest  40.00  in CHINA EDUCATION GROUP on September 3, 2024 and sell it today you would earn a total of  1.00  from holding CHINA EDUCATION GROUP or generate 2.5% return on investment over 90 days.

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

CHINA EDUCATION GROUP  vs.  Verizon Communications

CHINA EDUCATION GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA EDUCATION GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Verizon Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Bank of America may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CHINA EDUCATION and Bank of America

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

The idea behind CHINA EDUCATION GROUP and Verizon Communications 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.