Correlation Between Auburn Bancorp and China Merchants

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

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

Diversification Opportunities for Auburn Bancorp and China Merchants

0.07

Correlation Coefficient

Auburn Bancorp  China Merchants

Significant diversification

The 3 months correlation between Auburn and China is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Auburn Bancorp 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 Auburn Bancorp 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 Auburn Bancorp 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 Auburn Bancorp i.e., Auburn Bancorp and China Merchants go up and down completely randomly.

Pair Corralation between Auburn Bancorp and China Merchants

Given the investment horizon of 90 days Auburn Bancorp is expected to generate 19.09 times less return on investment than China Merchants. But when comparing it to its historical volatility, Auburn Bancorp is 4.37 times less risky than China Merchants. It trades about 0.01 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  424.00  in China Merchants Bank on September 13, 2024 and sell it today you would earn a total of  46.00  from holding China Merchants Bank or generate 10.85% return on investment over 90 days.

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

Auburn Bancorp  vs.  China Merchants Bank

Auburn Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auburn Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Auburn Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Merchants Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Auburn Bancorp and China Merchants

The main advantage of trading using opposite Auburn Bancorp and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auburn Bancorp 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 Auburn Bancorp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.