Correlation Between Fuzhou Rockchip and China Merchants

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

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

Diversification Opportunities for Fuzhou Rockchip and China Merchants

0.73

Correlation Coefficient

Fuzhou Rockchip  China Merchants

Poor diversification

The 3 months correlation between Fuzhou and China is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Fuzhou Rockchip Electronics 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 Fuzhou Rockchip 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 Fuzhou Rockchip Electronics 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 Fuzhou Rockchip i.e., Fuzhou Rockchip and China Merchants go up and down completely randomly.

Pair Corralation between Fuzhou Rockchip and China Merchants

Assuming the 90 days trading horizon Fuzhou Rockchip Electronics is expected to generate 5.25 times more return on investment than China Merchants. However, Fuzhou Rockchip is 5.25 times more volatile than China Merchants Bank. It trades about 0.28 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.21 per unit of risk. If you would invest  10,700  in Fuzhou Rockchip Electronics on October 22, 2024 and sell it today you would earn a total of  3,700  from holding Fuzhou Rockchip Electronics or generate 34.58% return on investment over 90 days.

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

Fuzhou Rockchip Electronics  vs.  China Merchants Bank

Fuzhou Rockchip Elec

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fuzhou Rockchip Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuzhou Rockchip sustained solid returns over the last few months and may actually be approaching a breakup point.

China Merchants Bank

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 2 (%) 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.

Pair Trading with Fuzhou Rockchip and China Merchants

The main advantage of trading using opposite Fuzhou Rockchip and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fuzhou Rockchip 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 Fuzhou Rockchip Electronics 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.