Correlation Between China Merchants and TianJin 712

Can any of the company-specific risk be diversified away by investing in both China Merchants and TianJin 712 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 TianJin 712 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 TianJin 712 Communication, you can compare the effects of market volatilities on China Merchants and TianJin 712 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 TianJin 712. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and TianJin 712.

Diversification Opportunities for China Merchants and TianJin 712

0.77

Correlation Coefficient

China Merchants  TianJin 712

Poor diversification

The 3 months correlation between China and TianJin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and TianJin 712 Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TianJin 712 Communication 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 TianJin 712. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TianJin 712 Communication has no effect on the direction of China Merchants i.e., China Merchants and TianJin 712 go up and down completely randomly.

Pair Corralation between China Merchants and TianJin 712

Assuming the 90 days trading horizon China Merchants Bank is expected to generate 0.57 times more return on investment than TianJin 712. However, China Merchants Bank is 1.77 times less risky than TianJin 712. It trades about 0.02 of its potential returns per unit of risk. TianJin 712 Communication is currently generating about -0.03 per unit of risk. If you would invest  3,531  in China Merchants Bank on September 20, 2024 and sell it today you would earn a total of  321.00  from holding China Merchants Bank or generate 9.09% return on investment over 90 days.

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

China Merchants Bank  vs.  TianJin 712 Communication

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.

TianJin 712 Communication

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TianJin 712 Communication are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TianJin 712 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and TianJin 712

The main advantage of trading using opposite China Merchants and TianJin 712 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, TianJin 712 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 TianJin 712 will offset losses from the drop in TianJin 712's long position.

The idea behind China Merchants Bank and TianJin 712 Communication 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..