Correlation Between Huaxia Fund and China Merchants

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

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

Diversification Opportunities for Huaxia Fund and China Merchants

-0.7

Correlation Coefficient

Huaxia Fund  China Merchants

Excellent diversification

The 3 months correlation between Huaxia and China is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Huaxia Fund Management and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Huaxia Fund 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 Huaxia Fund Management 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 Shekou has no effect on the direction of Huaxia Fund i.e., Huaxia Fund and China Merchants go up and down completely randomly.

Pair Corralation between Huaxia Fund and China Merchants

Assuming the 90 days trading horizon Huaxia Fund Management is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Huaxia Fund Management is 3.79 times less risky than China Merchants. The stock trades about -0.05 of its potential returns per unit of risk. The China Merchants Shekou is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  903.00  in China Merchants Shekou on September 5, 2024 and sell it today you would earn a total of  282.00  from holding China Merchants Shekou or generate 31.23% return on investment over 90 days.

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

Huaxia Fund Management  vs.  China Merchants Shekou

Huaxia Fund Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaxia Fund Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Huaxia Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Merchants Shekou

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 12 (%) 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.

Pair Trading with Huaxia Fund and China Merchants

The main advantage of trading using opposite Huaxia Fund and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huaxia Fund 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 Huaxia Fund Management and China Merchants Shekou 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.