Correlation Between China Merchants and Northking Information

Can any of the company-specific risk be diversified away by investing in both China Merchants and Northking Information 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 Northking Information 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 Northking Information Technology, you can compare the effects of market volatilities on China Merchants and Northking Information 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 Northking Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Northking Information.

Diversification Opportunities for China Merchants and Northking Information

0.76

Correlation Coefficient

China Merchants  Northking Information

Poor diversification

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

Pair Corralation between China Merchants and Northking Information

Assuming the 90 days trading horizon China Merchants Bank is expected to generate 0.48 times more return on investment than Northking Information. However, China Merchants Bank is 2.08 times less risky than Northking Information. It trades about -0.01 of its potential returns per unit of risk. Northking Information Technology is currently generating about -0.01 per unit of risk. If you would invest  4,000  in China Merchants Bank on October 1, 2024 and sell it today you would lose (66.00) from holding China Merchants Bank or give up 1.65% of portfolio value over 90 days.

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

China Merchants Bank  vs.  Northking Information Technolo

China Merchants Bank

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Northking Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Merchants and Northking Information

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

The idea behind China Merchants Bank and Northking Information 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.