Correlation Between China Merchants and Hainan Mining

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

Diversification Opportunities for China Merchants and Hainan Mining

0.89

Correlation Coefficient

China Merchants  Hainan Mining

Very poor diversification

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

Pair Corralation between China Merchants and Hainan Mining

Assuming the 90 days trading horizon China Merchants is expected to generate 2.41 times less return on investment than Hainan Mining. But when comparing it to its historical volatility, China Merchants Bank is 1.46 times less risky than Hainan Mining. It trades about 0.13 of its potential returns per unit of risk. Hainan Mining Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  534.00  in Hainan Mining Co on September 4, 2024 and sell it today you would earn a total of  239.00  from holding Hainan Mining Co or generate 44.76% return on investment over 90 days.

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

China Merchants Bank  vs.  Hainan Mining Co

China Merchants Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 10 (%) 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.

Hainan Mining

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Mining Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Hainan Mining

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

The idea behind China Merchants Bank and Hainan Mining 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.