Correlation Between China Merchants and Guangdong Banbao

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

Diversification Opportunities for China Merchants and Guangdong Banbao

-0.32

Correlation Coefficient

China Merchants  Guangdong Banbao

Very good diversification

The 3 months correlation between China and Guangdong is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Guangdong Banbao Toy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Banbao Toy 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 Guangdong Banbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Banbao Toy has no effect on the direction of China Merchants i.e., China Merchants and Guangdong Banbao go up and down completely randomly.

Pair Corralation between China Merchants and Guangdong Banbao

Assuming the 90 days trading horizon China Merchants Bank is expected to generate 0.34 times more return on investment than Guangdong Banbao. However, China Merchants Bank is 2.94 times less risky than Guangdong Banbao. It trades about 0.11 of its potential returns per unit of risk. Guangdong Banbao Toy is currently generating about -0.16 per unit of risk. If you would invest  3,948  in China Merchants Bank on December 26, 2024 and sell it today you would earn a total of  318.00  from holding China Merchants Bank or generate 8.05% return on investment over 90 days.

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

China Merchants Bank  vs.  Guangdong Banbao Toy

China Merchants Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Guangdong Banbao Toy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Banbao Toy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Merchants and Guangdong Banbao

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

The idea behind China Merchants Bank and Guangdong Banbao Toy 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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.