Correlation Between Ping An and China Merchants

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

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

Diversification Opportunities for Ping An and China Merchants

0.8

Correlation Coefficient

Ping An  China Merchants

Very poor diversification

The 3 months correlation between Ping and China is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ping An Insurance and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Ping An 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 Ping An Insurance 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 Shekou has no effect on the direction of Ping An i.e., Ping An and China Merchants go up and down completely randomly.

Pair Corralation between Ping An and China Merchants

Assuming the 90 days trading horizon Ping An Insurance is expected to generate 0.61 times more return on investment than China Merchants. However, Ping An Insurance is 1.63 times less risky than China Merchants. It trades about 0.04 of its potential returns per unit of risk. China Merchants Shekou is currently generating about -0.05 per unit of risk. If you would invest  5,257  in Ping An Insurance on September 25, 2024 and sell it today you would earn a total of  53.00  from holding Ping An Insurance or generate 1.01% return on investment over 90 days.

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

Ping An Insurance  vs.  China Merchants Shekou

Ping An Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ping An Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ping An sustained solid returns over the last few months and may actually be approaching a breakup point.

China Merchants Shekou

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 4 (%) 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 January 2025.

Pair Trading with Ping An and China Merchants

The main advantage of trading using opposite Ping An and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ping An 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 Ping An Insurance and China Merchants Shekou 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 Transaction History module to view history of all your transactions and understand their impact on performance.