Correlation Between CHINA BANK and SHINHAN FINL

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

By analyzing existing cross correlation between CHINA BANK ADR20 and SHINHAN FINL ADR1, you can compare the effects of market volatilities on CHINA BANK and SHINHAN FINL 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 BANK with a short position of SHINHAN FINL. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA BANK and SHINHAN FINL.

Diversification Opportunities for CHINA BANK and SHINHAN FINL

0.93

Correlation Coefficient

CHINA BANK  SHINHAN FINL

Almost no diversification

The 3 months correlation between CHINA and SHINHAN is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding CHINA BANK ADR20 and SHINHAN FINL ADR1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHINHAN FINL ADR1 and CHINA BANK 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 BANK ADR20 are associated (or correlated) with SHINHAN FINL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHINHAN FINL ADR1 has no effect on the direction of CHINA BANK i.e., CHINA BANK and SHINHAN FINL go up and down completely randomly.

Pair Corralation between CHINA BANK and SHINHAN FINL

Assuming the 90 days trading horizon CHINA BANK is expected to generate 1.79 times less return on investment than SHINHAN FINL. But when comparing it to its historical volatility, CHINA BANK ADR20 is 1.25 times less risky than SHINHAN FINL. It trades about 0.17 of its potential returns per unit of risk. SHINHAN FINL ADR1 is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,906  in SHINHAN FINL ADR1 on April 24, 2025 and sell it today you would earn a total of  1,274  from holding SHINHAN FINL ADR1 or generate 43.84% return on investment over 90 days.

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

CHINA BANK ADR20  vs.  SHINHAN FINL ADR1

CHINA BANK ADR20

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, CHINA BANK reported solid returns over the last few months and may actually be approaching a breakup point.

SHINHAN FINL ADR1

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SHINHAN FINL ADR1 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, SHINHAN FINL reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHINA BANK and SHINHAN FINL

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

The idea behind CHINA BANK ADR20 and SHINHAN FINL ADR1 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.