Correlation Between China Mengniu and Commerce Bancshares

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

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

Diversification Opportunities for China Mengniu and Commerce Bancshares

-0.11

Correlation Coefficient

China Mengniu  Commerce Bancshares

Good diversification

The 3 months correlation between China and Commerce is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and China Mengniu 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 China Mengniu Dairy are associated (or correlated) with Commerce Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Bancshares has no effect on the direction of China Mengniu i.e., China Mengniu and Commerce Bancshares go up and down completely randomly.

Pair Corralation between China Mengniu and Commerce Bancshares

Assuming the 90 days horizon China Mengniu Dairy is expected to generate 3.3 times more return on investment than Commerce Bancshares. However, China Mengniu is 3.3 times more volatile than Commerce Bancshares. It trades about 0.12 of its potential returns per unit of risk. Commerce Bancshares is currently generating about -0.52 per unit of risk. If you would invest  2,139  in China Mengniu Dairy on September 24, 2024 and sell it today you would earn a total of  156.00  from holding China Mengniu Dairy or generate 7.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Mengniu Dairy  vs.  Commerce Bancshares

China Mengniu Dairy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Commerce Bancshares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Bancshares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Commerce Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Mengniu and Commerce Bancshares

The main advantage of trading using opposite China Mengniu and Commerce Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Mengniu position performs unexpectedly, Commerce Bancshares 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 Commerce Bancshares will offset losses from the drop in Commerce Bancshares' long position.

The idea behind China Mengniu Dairy and Commerce Bancshares 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.