Correlation Between China Merchants and Vats Liquor

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

Diversification Opportunities for China Merchants and Vats Liquor

0.53

Correlation Coefficient

China Merchants  Vats Liquor

Very weak diversification

The 3 months correlation between China and Vats is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Vats Liquor Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vats Liquor Chain 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 Vats Liquor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vats Liquor Chain has no effect on the direction of China Merchants i.e., China Merchants and Vats Liquor go up and down completely randomly.

Pair Corralation between China Merchants and Vats Liquor

Assuming the 90 days trading horizon China Merchants Bank is expected to generate 0.48 times more return on investment than Vats Liquor. However, China Merchants Bank is 2.09 times less risky than Vats Liquor. It trades about 0.24 of its potential returns per unit of risk. Vats Liquor Chain is currently generating about -0.01 per unit of risk. If you would invest  3,651  in China Merchants Bank on October 3, 2024 and sell it today you would earn a total of  279.00  from holding China Merchants Bank or generate 7.64% return on investment over 90 days.

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

China Merchants Bank  vs.  Vats Liquor Chain

China Merchants Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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.

Vats Liquor Chain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vats Liquor Chain has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Merchants and Vats Liquor

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

The idea behind China Merchants Bank and Vats Liquor Chain 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.