Correlation Between China Merchants and Ye Chiu

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

Diversification Opportunities for China Merchants and Ye Chiu

-0.46

Correlation Coefficient

China Merchants  Ye Chiu

Very good diversification

The 3 months correlation between China and 601388 is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Ye Chiu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ye Chiu Metal 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 Ye Chiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ye Chiu Metal has no effect on the direction of China Merchants i.e., China Merchants and Ye Chiu go up and down completely randomly.

Pair Corralation between China Merchants and Ye Chiu

Assuming the 90 days trading horizon China Merchants Bank is expected to generate 0.6 times more return on investment than Ye Chiu. However, China Merchants Bank is 1.67 times less risky than Ye Chiu. It trades about 0.01 of its potential returns per unit of risk. Ye Chiu Metal is currently generating about -0.02 per unit of risk. If you would invest  3,905  in China Merchants Bank on October 22, 2024 and sell it today you would earn a total of  107.00  from holding China Merchants Bank or generate 2.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

China Merchants Bank  vs.  Ye Chiu Metal

China Merchants Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 4 (%) 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.

Ye Chiu Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ye Chiu Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ye Chiu 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 Ye Chiu

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

The idea behind China Merchants Bank and Ye Chiu Metal 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.