Correlation Between China Merchants and ACM Research

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

Diversification Opportunities for China Merchants and ACM Research

0.66

Correlation Coefficient

China Merchants  ACM Research

Poor diversification

The 3 months correlation between China and ACM is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and ACM Research Shanghai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACM Research Shanghai 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 ACM Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACM Research Shanghai has no effect on the direction of China Merchants i.e., China Merchants and ACM Research go up and down completely randomly.

Pair Corralation between China Merchants and ACM Research

Assuming the 90 days trading horizon China Merchants is expected to generate 2.82 times less return on investment than ACM Research. But when comparing it to its historical volatility, China Merchants Bank is 2.05 times less risky than ACM Research. It trades about 0.02 of its potential returns per unit of risk. ACM Research Shanghai is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,060  in ACM Research Shanghai on October 1, 2024 and sell it today you would earn a total of  1,412  from holding ACM Research Shanghai or generate 15.58% 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.  ACM Research Shanghai

China Merchants Bank

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

ACM Research Shanghai

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ACM Research Shanghai 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Merchants and ACM Research

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

The idea behind China Merchants Bank and ACM Research Shanghai 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.