Correlation Between China Merchants and Savi Financial

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

Diversification Opportunities for China Merchants and Savi Financial

-0.47

Correlation Coefficient

China Merchants  Savi Financial

Very good diversification

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

Pair Corralation between China Merchants and Savi Financial

Assuming the 90 days horizon China Merchants Bank is expected to under-perform the Savi Financial. In addition to that, China Merchants is 11.73 times more volatile than Savi Financial. It trades about -0.13 of its total potential returns per unit of risk. Savi Financial is currently generating about 0.2 per unit of volatility. If you would invest  1,470  in Savi Financial on October 26, 2024 and sell it today you would earn a total of  40.00  from holding Savi Financial or generate 2.72% return on investment over 90 days.

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

China Merchants Bank  vs.  Savi Financial

China Merchants Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Savi Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Savi Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Savi Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Merchants and Savi Financial

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

The idea behind China Merchants Bank and Savi Financial 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.