Correlation Between BANK OCHINA and COMMONWBK AUSTRSPADRS

Can any of the company-specific risk be diversified away by investing in both BANK OCHINA and COMMONWBK AUSTRSPADRS 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 OCHINA and COMMONWBK AUSTRSPADRS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BANK OCHINA H and COMMONWBK AUSTRSPADRS, you can compare the effects of market volatilities on BANK OCHINA and COMMONWBK AUSTRSPADRS 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 OCHINA with a short position of COMMONWBK AUSTRSPADRS. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK OCHINA and COMMONWBK AUSTRSPADRS.

Diversification Opportunities for BANK OCHINA and COMMONWBK AUSTRSPADRS

0.28

Correlation Coefficient

BANK OCHINA  COMMONWBK AUSTRSPADRS

Modest diversification

The 3 months correlation between BANK and COMMONWBK is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding BANK OCHINA H and COMMONWBK AUSTRSPADRS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMMONWBK AUSTRSPADRS and BANK OCHINA 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 OCHINA H are associated (or correlated) with COMMONWBK AUSTRSPADRS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMMONWBK AUSTRSPADRS has no effect on the direction of BANK OCHINA i.e., BANK OCHINA and COMMONWBK AUSTRSPADRS go up and down completely randomly.

Pair Corralation between BANK OCHINA and COMMONWBK AUSTRSPADRS

Assuming the 90 days trading horizon BANK OCHINA is expected to generate 2.39 times less return on investment than COMMONWBK AUSTRSPADRS. In addition to that, BANK OCHINA is 1.95 times more volatile than COMMONWBK AUSTRSPADRS. It trades about 0.03 of its total potential returns per unit of risk. COMMONWBK AUSTRSPADRS is currently generating about 0.14 per unit of volatility. If you would invest  8,600  in COMMONWBK AUSTRSPADRS on September 2, 2024 and sell it today you would earn a total of  1,050  from holding COMMONWBK AUSTRSPADRS or generate 12.21% return on investment over 90 days.

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

BANK OCHINA H  vs.  COMMONWBK AUSTRSPADRS

BANK OCHINA H

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BANK OCHINA H are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BANK OCHINA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

COMMONWBK AUSTRSPADRS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COMMONWBK AUSTRSPADRS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, COMMONWBK AUSTRSPADRS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BANK OCHINA and COMMONWBK AUSTRSPADRS

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

The idea behind BANK OCHINA H and COMMONWBK AUSTRSPADRS 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..