Correlation Between Guangzhou Zhujiang and China Merchants

Can any of the company-specific risk be diversified away by investing in both Guangzhou Zhujiang 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 Guangzhou Zhujiang and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangzhou Zhujiang Brewery and China Merchants Bank, you can compare the effects of market volatilities on Guangzhou Zhujiang 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 Guangzhou Zhujiang with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Zhujiang and China Merchants.

Diversification Opportunities for Guangzhou Zhujiang and China Merchants

0.52

Correlation Coefficient

Guangzhou Zhujiang  China Merchants

Very weak diversification

The 3 months correlation between Guangzhou and China is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery 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 Guangzhou Zhujiang 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 Guangzhou Zhujiang Brewery 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 Guangzhou Zhujiang i.e., Guangzhou Zhujiang and China Merchants go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and China Merchants

Assuming the 90 days trading horizon Guangzhou Zhujiang is expected to generate 1.56 times less return on investment than China Merchants. But when comparing it to its historical volatility, Guangzhou Zhujiang Brewery is 1.04 times less risky than China Merchants. It trades about 0.07 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,948  in China Merchants Bank on December 26, 2024 and sell it today you would earn a total of  318.00  from holding China Merchants Bank or generate 8.05% return on investment over 90 days.

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

Guangzhou Zhujiang Brewery  vs.  China Merchants Bank

Guangzhou Zhujiang

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Zhujiang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Merchants Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Guangzhou Zhujiang and China Merchants

The main advantage of trading using opposite Guangzhou Zhujiang and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangzhou Zhujiang 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 Guangzhou Zhujiang Brewery 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.