Correlation Between China Merchants and Caitong Securities

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

Diversification Opportunities for China Merchants and Caitong Securities

0.89

Correlation Coefficient

China Merchants  Caitong Securities

Very poor diversification

The 3 months correlation between China and Caitong is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Caitong Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caitong Securities 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 Caitong Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caitong Securities has no effect on the direction of China Merchants i.e., China Merchants and Caitong Securities go up and down completely randomly.

Pair Corralation between China Merchants and Caitong Securities

Assuming the 90 days trading horizon China Merchants is expected to generate 1.75 times less return on investment than Caitong Securities. But when comparing it to its historical volatility, China Merchants Bank is 1.21 times less risky than Caitong Securities. It trades about 0.02 of its potential returns per unit of risk. Caitong Securities Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  703.00  in Caitong Securities Co on September 20, 2024 and sell it today you would earn a total of  129.00  from holding Caitong Securities Co or generate 18.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

China Merchants Bank  vs.  Caitong Securities Co

China Merchants Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 13 (%) 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.

Caitong Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caitong Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Caitong Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Caitong Securities

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

The idea behind China Merchants Bank and Caitong Securities Co 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.