Correlation Between Circuit Fabology and China Merchants

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

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

Diversification Opportunities for Circuit Fabology and China Merchants

0.36

Correlation Coefficient

Circuit Fabology  China Merchants

Weak diversification

The 3 months correlation between Circuit and China is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Circuit Fabology Microelectron 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 Circuit Fabology 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 Circuit Fabology Microelectronics 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 Circuit Fabology i.e., Circuit Fabology and China Merchants go up and down completely randomly.

Pair Corralation between Circuit Fabology and China Merchants

Assuming the 90 days trading horizon Circuit Fabology Microelectronics is expected to under-perform the China Merchants. In addition to that, Circuit Fabology is 2.32 times more volatile than China Merchants Bank. It trades about -0.01 of its total potential returns per unit of risk. China Merchants Bank is currently generating about 0.03 per unit of volatility. If you would invest  3,305  in China Merchants Bank on October 5, 2024 and sell it today you would earn a total of  546.00  from holding China Merchants Bank or generate 16.52% return on investment over 90 days.

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

Circuit Fabology Microelectron  vs.  China Merchants Bank

Circuit Fabology Mic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Circuit Fabology Microelectronics 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Merchants Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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.

Pair Trading with Circuit Fabology and China Merchants

The main advantage of trading using opposite Circuit Fabology and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Circuit Fabology 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 Circuit Fabology Microelectronics 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.