Correlation Between Gotion High and China Merchants

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Can any of the company-specific risk be diversified away by investing in both Gotion High and China Merchants 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 Gotion High and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gotion High tech and China Merchants Bank, you can compare the effects of market volatilities on Gotion High and China Merchants 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 Gotion High with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gotion High and China Merchants.

Diversification Opportunities for Gotion High and China Merchants

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Gotion and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Gotion High tech and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank and Gotion High 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 Gotion High tech are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Gotion High i.e., Gotion High and China Merchants go up and down completely randomly.

Pair Corralation between Gotion High and China Merchants

Assuming the 90 days trading horizon Gotion High tech is expected to under-perform the China Merchants. In addition to that, Gotion High is 1.81 times more volatile than China Merchants Bank. It trades about -0.13 of its total potential returns per unit of risk. China Merchants Bank is currently generating about 0.05 per unit of volatility. If you would invest  3,743  in China Merchants Bank on September 22, 2024 and sell it today you would earn a total of  48.00  from holding China Merchants Bank or generate 1.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

Gotion High tech  vs.  China Merchants Bank

 Performance 
       Timeline  
Gotion High tech 

Risk-Adjusted Performance

8 of 100

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

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 11 (%) 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.

Gotion High and China Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Gotion High and China Merchants

The main advantage of trading using opposite Gotion High and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gotion High position performs unexpectedly, China Merchants 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 China Merchants will offset losses from the drop in China Merchants' long position.
The idea behind Gotion High tech and China Merchants Bank 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.
Check out your portfolio center.
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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