Correlation Between China Merchants and Panda Financial

Can any of the company-specific risk be diversified away by investing in both China Merchants and Panda Financial 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 Panda Financial 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 Panda Financial Holding, you can compare the effects of market volatilities on China Merchants and Panda Financial 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 Panda Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Panda Financial.

Diversification Opportunities for China Merchants and Panda Financial

0.31

Correlation Coefficient

China Merchants  Panda Financial

Weak diversification

The 3 months correlation between China and Panda is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Panda Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Panda Financial Holding 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 Panda Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Panda Financial Holding has no effect on the direction of China Merchants i.e., China Merchants and Panda Financial go up and down completely randomly.

Pair Corralation between China Merchants and Panda Financial

Assuming the 90 days trading horizon China Merchants Shekou is expected to under-perform the Panda Financial. But the stock apears to be less risky and, when comparing its historical volatility, China Merchants Shekou is 1.13 times less risky than Panda Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Panda Financial Holding is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,574  in Panda Financial Holding on September 26, 2024 and sell it today you would lose (275.00) from holding Panda Financial Holding or give up 17.47% of portfolio value over 90 days.

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

China Merchants Shekou  vs.  Panda Financial Holding

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 somewhat strong basic indicators, China Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Panda Financial Holding

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Panda Financial Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Panda Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Panda Financial

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

The idea behind China Merchants Shekou and Panda Financial Holding 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.