Correlation Between China Merchants and Harbor Bankshares

Can any of the company-specific risk be diversified away by investing in both China Merchants and Harbor Bankshares 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 Harbor Bankshares 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 Harbor Bankshares, you can compare the effects of market volatilities on China Merchants and Harbor Bankshares 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 Harbor Bankshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Harbor Bankshares.

Diversification Opportunities for China Merchants and Harbor Bankshares

-0.47

Correlation Coefficient

China Merchants  Harbor Bankshares

Very good diversification

The 3 months correlation between China and Harbor is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Harbor Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbor Bankshares 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 Harbor Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbor Bankshares has no effect on the direction of China Merchants i.e., China Merchants and Harbor Bankshares go up and down completely randomly.

Pair Corralation between China Merchants and Harbor Bankshares

Assuming the 90 days horizon China Merchants Bank is expected to generate 3.34 times more return on investment than Harbor Bankshares. However, China Merchants is 3.34 times more volatile than Harbor Bankshares. It trades about 0.05 of its potential returns per unit of risk. Harbor Bankshares is currently generating about 0.04 per unit of risk. If you would invest  424.00  in China Merchants Bank on August 30, 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 Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Merchants Bank  vs.  Harbor Bankshares

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.

Harbor Bankshares

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Harbor Bankshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Harbor Bankshares is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with China Merchants and Harbor Bankshares

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

The idea behind China Merchants Bank and Harbor Bankshares 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.