Correlation Between China Merchants and Hainan Haiqi

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

Diversification Opportunities for China Merchants and Hainan Haiqi

0.5

Correlation Coefficient

China Merchants  Hainan Haiqi

Very weak diversification

The 3 months correlation between China and Hainan is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Hainan Haiqi Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Haiqi Transpo 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 Hainan Haiqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Haiqi Transpo has no effect on the direction of China Merchants i.e., China Merchants and Hainan Haiqi go up and down completely randomly.

Pair Corralation between China Merchants and Hainan Haiqi

Assuming the 90 days trading horizon China Merchants Shekou is expected to under-perform the Hainan Haiqi. But the stock apears to be less risky and, when comparing its historical volatility, China Merchants Shekou is 1.21 times less risky than Hainan Haiqi. The stock trades about -0.1 of its potential returns per unit of risk. The Hainan Haiqi Transportation is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,829  in Hainan Haiqi Transportation on October 6, 2024 and sell it today you would lose (122.00) from holding Hainan Haiqi Transportation or give up 6.67% 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.  Hainan Haiqi Transportation

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

Hainan Haiqi Transpo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hainan Haiqi Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hainan Haiqi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Merchants and Hainan Haiqi

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

The idea behind China Merchants Shekou and Hainan Haiqi Transportation 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.