Correlation Between China Merchants and Zhangjiagang Elegant

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

Diversification Opportunities for China Merchants and Zhangjiagang Elegant

0.78

Correlation Coefficient

China Merchants  Zhangjiagang Elegant

Poor diversification

The 3 months correlation between China and Zhangjiagang is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Zhangjiagang Elegant Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhangjiagang Elegant Home 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 Zhangjiagang Elegant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhangjiagang Elegant Home has no effect on the direction of China Merchants i.e., China Merchants and Zhangjiagang Elegant go up and down completely randomly.

Pair Corralation between China Merchants and Zhangjiagang Elegant

Assuming the 90 days trading horizon China Merchants is expected to generate 1.81 times less return on investment than Zhangjiagang Elegant. In addition to that, China Merchants is 1.11 times more volatile than Zhangjiagang Elegant Home. It trades about 0.1 of its total potential returns per unit of risk. Zhangjiagang Elegant Home is currently generating about 0.21 per unit of volatility. If you would invest  799.00  in Zhangjiagang Elegant Home on September 17, 2024 and sell it today you would earn a total of  323.00  from holding Zhangjiagang Elegant Home or generate 40.43% return on investment over 90 days.

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

China Merchants Shekou  vs.  Zhangjiagang Elegant Home

China Merchants Shekou

Risk-Adjusted Performance

8 of 100

OK

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

Zhangjiagang Elegant Home

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zhangjiagang Elegant Home are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhangjiagang Elegant sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Zhangjiagang Elegant

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

The idea behind China Merchants Shekou and Zhangjiagang Elegant Home 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.