Correlation Between China Merchants and Nmb Financial

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

Diversification Opportunities for China Merchants and Nmb Financial

0.11

Correlation Coefficient

China Merchants  Nmb Financial

Average diversification

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

Pair Corralation between China Merchants and Nmb Financial

Assuming the 90 days horizon China Merchants Bank is expected to generate 2.71 times more return on investment than Nmb Financial. However, China Merchants is 2.71 times more volatile than Nmb Financial Corp. It trades about 0.1 of its potential returns per unit of risk. Nmb Financial Corp is currently generating about 0.02 per unit of risk. If you would invest  498.00  in China Merchants Bank on December 27, 2024 and sell it today you would earn a total of  117.00  from holding China Merchants Bank or generate 23.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.89%
Values	Daily Returns

China Merchants Bank  vs.  Nmb Financial Corp

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 7 (%) 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.

Nmb Financial Corp

Risk-Adjusted Performance

Weak

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

Pair Trading with China Merchants and Nmb Financial

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

The idea behind China Merchants Bank and Nmb Financial Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.