Correlation Between China Merchants and Alpha Bank

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

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

Diversification Opportunities for China Merchants and Alpha Bank

0.58

Correlation Coefficient

China Merchants  Alpha Bank

Very weak diversification

The 3 months correlation between China and Alpha is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Alpha Bank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Bank SA and China Merchants 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 Merchants Bank are associated (or correlated) with Alpha Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Bank SA has no effect on the direction of China Merchants i.e., China Merchants and Alpha Bank go up and down completely randomly.

Pair Corralation between China Merchants and Alpha Bank

Assuming the 90 days horizon China Merchants Bank is expected to under-perform the Alpha Bank. In addition to that, China Merchants is 1.36 times more volatile than Alpha Bank SA. It trades about -0.22 of its total potential returns per unit of risk. Alpha Bank SA is currently generating about 0.17 per unit of volatility. If you would invest  42.00  in Alpha Bank SA on December 2, 2024 and sell it today you would earn a total of  3.00  from holding Alpha Bank SA or generate 7.14% return on investment over 90 days.

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

China Merchants Bank  vs.  Alpha Bank SA

China Merchants Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, China Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Alpha Bank SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Bank SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, Alpha Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Alpha Bank

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

The idea behind China Merchants Bank and Alpha Bank SA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.