Correlation Between Harbin Hatou and China Merchants

Can any of the company-specific risk be diversified away by investing in both Harbin Hatou and China Merchants 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 Harbin Hatou and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Harbin Hatou Investment and China Merchants Bank, you can compare the effects of market volatilities on Harbin Hatou and China Merchants 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 Harbin Hatou with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harbin Hatou and China Merchants.

Diversification Opportunities for Harbin Hatou and China Merchants

0.79

Correlation Coefficient

Harbin Hatou  China Merchants

Poor diversification

The 3 months correlation between Harbin and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Hatou Investment and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank and Harbin Hatou 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 Harbin Hatou Investment are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Harbin Hatou i.e., Harbin Hatou and China Merchants go up and down completely randomly.

Pair Corralation between Harbin Hatou and China Merchants

Assuming the 90 days trading horizon Harbin Hatou Investment is expected to generate 1.86 times more return on investment than China Merchants. However, Harbin Hatou is 1.86 times more volatile than China Merchants Bank. It trades about 0.21 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.15 per unit of risk. If you would invest  475.00  in Harbin Hatou Investment on September 15, 2024 and sell it today you would earn a total of  277.00  from holding Harbin Hatou Investment or generate 58.32% return on investment over 90 days.

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

Harbin Hatou Investment  vs.  China Merchants Bank

Harbin Hatou Investment

Risk-Adjusted Performance

16 of 100

Solid

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

China Merchants Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 11 (%) 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.

Pair Trading with Harbin Hatou and China Merchants

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

The idea behind Harbin Hatou Investment and China Merchants Bank 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.