Correlation Between China Merchants and Citizens Financial

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

Diversification Opportunities for China Merchants and Citizens Financial

-0.07

Correlation Coefficient

China Merchants  Citizens Financial

Good diversification

The 3 months correlation between China and Citizens is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Citizens Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens 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 Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial Corp has no effect on the direction of China Merchants i.e., China Merchants and Citizens Financial go up and down completely randomly.

Pair Corralation between China Merchants and Citizens Financial

Assuming the 90 days horizon China Merchants is expected to generate 6.47 times less return on investment than Citizens Financial. But when comparing it to its historical volatility, China Merchants Bank is 1.21 times less risky than Citizens Financial. It trades about 0.01 of its potential returns per unit of risk. Citizens Financial Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,653  in Citizens Financial Corp on September 20, 2024 and sell it today you would earn a total of  772.00  from holding Citizens Financial Corp or generate 46.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	68.89%
Values	Daily Returns

China Merchants Bank  vs.  Citizens Financial Corp

China Merchants Bank

Risk-Adjusted Performance

7 of 100

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. In spite of fairly weak forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

Citizens Financial Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Citizens Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Citizens Financial

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

The idea behind China Merchants Bank and Citizens 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.