Correlation Between Bank and China Merchants

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

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

Diversification Opportunities for Bank and China Merchants

0.0

Correlation Coefficient

Bank  China Merchants

Pay attention - limited upside

The 3 months correlation between Bank and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Bank 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 Bank 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 Bank 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 Bank i.e., Bank and China Merchants go up and down completely randomly.

Pair Corralation between Bank and China Merchants

If you would invest  2,540  in China Merchants Bank on December 28, 2024 and sell it today you would earn a total of  412.00  from holding China Merchants Bank or generate 16.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Bank  vs.  China Merchants Bank

Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Merchants Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank and China Merchants

The main advantage of trading using opposite Bank and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank 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 Bank 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.