Correlation Between China Merchants and Cultural Investment

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

Diversification Opportunities for China Merchants and Cultural Investment

0.64

Correlation Coefficient

China Merchants  Cultural Investment

Poor diversification

The 3 months correlation between China and Cultural is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Cultural Investment Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cultural Investment 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 Cultural Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cultural Investment has no effect on the direction of China Merchants i.e., China Merchants and Cultural Investment go up and down completely randomly.

Pair Corralation between China Merchants and Cultural Investment

Assuming the 90 days trading horizon China Merchants Shekou is expected to under-perform the Cultural Investment. But the stock apears to be less risky and, when comparing its historical volatility, China Merchants Shekou is 1.69 times less risky than Cultural Investment. The stock trades about -0.22 of its potential returns per unit of risk. The Cultural Investment Holdings is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  228.00  in Cultural Investment Holdings on December 2, 2024 and sell it today you would lose (22.00) from holding Cultural Investment Holdings or give up 9.65% of portfolio value over 90 days.

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

China Merchants Shekou  vs.  Cultural Investment Holdings

China Merchants Shekou

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Cultural Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cultural Investment Holdings 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.

Pair Trading with China Merchants and Cultural Investment

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

The idea behind China Merchants Shekou and Cultural Investment Holdings 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.