Correlation Between Ningbo Fangzheng and China Merchants

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

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

Diversification Opportunities for Ningbo Fangzheng and China Merchants

0.05

Correlation Coefficient

Ningbo Fangzheng  China Merchants

Significant diversification

The 3 months correlation between Ningbo and China is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Fangzheng Automobile 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 Ningbo Fangzheng 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 Ningbo Fangzheng Automobile 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 Ningbo Fangzheng i.e., Ningbo Fangzheng and China Merchants go up and down completely randomly.

Pair Corralation between Ningbo Fangzheng and China Merchants

Assuming the 90 days trading horizon Ningbo Fangzheng Automobile is expected to under-perform the China Merchants. In addition to that, Ningbo Fangzheng is 1.89 times more volatile than China Merchants Bank. It trades about -0.24 of its total potential returns per unit of risk. China Merchants Bank is currently generating about 0.13 per unit of volatility. If you would invest  3,770  in China Merchants Bank on October 9, 2024 and sell it today you would earn a total of  135.00  from holding China Merchants Bank or generate 3.58% return on investment over 90 days.

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

Ningbo Fangzheng Automobile  vs.  China Merchants Bank

Ningbo Fangzheng Aut

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningbo Fangzheng Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ningbo Fangzheng 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

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ningbo Fangzheng and China Merchants

The main advantage of trading using opposite Ningbo Fangzheng and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ningbo Fangzheng 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 Ningbo Fangzheng Automobile 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.