Correlation Between China Merchants and Nanjing OLO

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

Diversification Opportunities for China Merchants and Nanjing OLO

0.5

Correlation Coefficient

China Merchants  Nanjing OLO

Very weak diversification

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

Pair Corralation between China Merchants and Nanjing OLO

Assuming the 90 days trading horizon China Merchants Shekou is expected to under-perform the Nanjing OLO. But the stock apears to be less risky and, when comparing its historical volatility, China Merchants Shekou is 1.65 times less risky than Nanjing OLO. The stock trades about -0.11 of its potential returns per unit of risk. The Nanjing OLO Home is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  636.00  in Nanjing OLO Home on November 20, 2024 and sell it today you would earn a total of  38.00  from holding Nanjing OLO Home or generate 5.97% return on investment over 90 days.

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

China Merchants Shekou  vs.  Nanjing OLO Home

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 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.

Nanjing OLO Home

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nanjing OLO Home are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanjing OLO may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with China Merchants and Nanjing OLO

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

The idea behind China Merchants Shekou and Nanjing OLO 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.