Correlation Between China Merchants and Zhejiang Zanyu

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

By analyzing existing cross correlation between China Merchants Bank and Zhejiang Zanyu Technology, you can compare the effects of market volatilities on China Merchants and Zhejiang Zanyu 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 Zhejiang Zanyu. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Zhejiang Zanyu.

Diversification Opportunities for China Merchants and Zhejiang Zanyu

-0.41

Correlation Coefficient

China Merchants  Zhejiang Zanyu

Very good diversification

The 3 months correlation between China and Zhejiang is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Zhejiang Zanyu Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Zanyu Technology 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 Bank are associated (or correlated) with Zhejiang Zanyu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Zanyu Technology has no effect on the direction of China Merchants i.e., China Merchants and Zhejiang Zanyu go up and down completely randomly.

Pair Corralation between China Merchants and Zhejiang Zanyu

Assuming the 90 days trading horizon China Merchants is expected to generate 8.05 times less return on investment than Zhejiang Zanyu. But when comparing it to its historical volatility, China Merchants Bank is 2.04 times less risky than Zhejiang Zanyu. It trades about 0.02 of its potential returns per unit of risk. Zhejiang Zanyu Technology is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  911.00  in Zhejiang Zanyu Technology on October 23, 2024 and sell it today you would earn a total of  112.00  from holding Zhejiang Zanyu Technology or generate 12.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Merchants Bank  vs.  Zhejiang Zanyu Technology

China Merchants Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 1 (%) 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.

Zhejiang Zanyu Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Zanyu Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Zanyu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Zhejiang Zanyu

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

The idea behind China Merchants Bank and Zhejiang Zanyu Technology 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.