Correlation Between China Merchants and Bohai Leasing

Can any of the company-specific risk be diversified away by investing in both China Merchants and Bohai Leasing 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 Merchants and Bohai Leasing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Merchants Shekou and Bohai Leasing Co, you can compare the effects of market volatilities on China Merchants and Bohai Leasing 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 Merchants with a short position of Bohai Leasing. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Bohai Leasing.

Diversification Opportunities for China Merchants and Bohai Leasing

0.46

Correlation Coefficient

China Merchants  Bohai Leasing

Very weak diversification

The 3 months correlation between China and Bohai is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Bohai Leasing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bohai Leasing and China Merchants 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 Merchants Shekou are associated (or correlated) with Bohai Leasing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bohai Leasing has no effect on the direction of China Merchants i.e., China Merchants and Bohai Leasing go up and down completely randomly.

Pair Corralation between China Merchants and Bohai Leasing

Assuming the 90 days trading horizon China Merchants Shekou is expected to generate 0.74 times more return on investment than Bohai Leasing. However, China Merchants Shekou is 1.36 times less risky than Bohai Leasing. It trades about -0.13 of its potential returns per unit of risk. Bohai Leasing Co is currently generating about -0.2 per unit of risk. If you would invest  1,068  in China Merchants Shekou on October 21, 2024 and sell it today you would lose (47.00) from holding China Merchants Shekou or give up 4.4% of portfolio value over 90 days.

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

China Merchants Shekou  vs.  Bohai Leasing Co

China Merchants Shekou

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Merchants Shekou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Bohai Leasing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bohai Leasing Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bohai Leasing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Bohai Leasing

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

The idea behind China Merchants Shekou and Bohai Leasing Co 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.