Correlation Between China Merchants and Beijing YanDong

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

Diversification Opportunities for China Merchants and Beijing YanDong

-0.58

Correlation Coefficient

China Merchants  Beijing YanDong

Excellent diversification

The 3 months correlation between China and Beijing is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Beijing YanDong MicroElectroni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing YanDong Micr 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 Beijing YanDong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing YanDong Micr has no effect on the direction of China Merchants i.e., China Merchants and Beijing YanDong go up and down completely randomly.

Pair Corralation between China Merchants and Beijing YanDong

Assuming the 90 days trading horizon China Merchants is expected to generate 1.68 times less return on investment than Beijing YanDong. But when comparing it to its historical volatility, China Merchants Bank is 2.17 times less risky than Beijing YanDong. It trades about 0.01 of its potential returns per unit of risk. Beijing YanDong MicroElectronic is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,110  in Beijing YanDong MicroElectronic on October 23, 2024 and sell it today you would lose (172.00) from holding Beijing YanDong MicroElectronic or give up 8.15% of portfolio value over 90 days.

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

China Merchants Bank  vs.  Beijing YanDong MicroElectroni

China Merchants Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 1 (%) 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.

Beijing YanDong Micr

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing YanDong MicroElectronic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing YanDong may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Merchants and Beijing YanDong

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

The idea behind China Merchants Bank and Beijing YanDong MicroElectronic 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.