Correlation Between China Merchants and HengFeng Information

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

Diversification Opportunities for China Merchants and HengFeng Information

0.76

Correlation Coefficient

China Merchants  HengFeng Information

Poor diversification

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

Pair Corralation between China Merchants and HengFeng Information

Assuming the 90 days trading horizon China Merchants is expected to generate 2.63 times less return on investment than HengFeng Information. But when comparing it to its historical volatility, China Merchants Bank is 2.12 times less risky than HengFeng Information. It trades about 0.15 of its potential returns per unit of risk. HengFeng Information Technology is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  908.00  in HengFeng Information Technology on September 15, 2024 and sell it today you would earn a total of  513.00  from holding HengFeng Information Technology or generate 56.5% return on investment over 90 days.

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

China Merchants Bank  vs.  HengFeng Information Technolog

China Merchants Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 11 (%) 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.

HengFeng Information

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HengFeng Information Technology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HengFeng Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and HengFeng Information

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

The idea behind China Merchants Bank and HengFeng 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..