Correlation Between China Merchants and 1ST SUMMIT

Can any of the company-specific risk be diversified away by investing in both China Merchants and 1ST SUMMIT 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 1ST SUMMIT 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 1ST SUMMIT BANCORP, you can compare the effects of market volatilities on China Merchants and 1ST SUMMIT 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 1ST SUMMIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and 1ST SUMMIT.

Diversification Opportunities for China Merchants and 1ST SUMMIT

0.7

Correlation Coefficient

China Merchants  1ST SUMMIT

Poor diversification

The 3 months correlation between China and 1ST is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and 1ST SUMMIT BANCORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1ST SUMMIT BANCORP 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 1ST SUMMIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1ST SUMMIT BANCORP has no effect on the direction of China Merchants i.e., China Merchants and 1ST SUMMIT go up and down completely randomly.

Pair Corralation between China Merchants and 1ST SUMMIT

Assuming the 90 days horizon China Merchants Bank is expected to generate 3.95 times more return on investment than 1ST SUMMIT. However, China Merchants is 3.95 times more volatile than 1ST SUMMIT BANCORP. It trades about 0.07 of its potential returns per unit of risk. 1ST SUMMIT BANCORP is currently generating about 0.1 per unit of risk. If you would invest  2,000  in China Merchants Bank on September 4, 2024 and sell it today you would earn a total of  287.00  from holding China Merchants Bank or generate 14.35% return on investment over 90 days.

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

China Merchants Bank  vs.  1ST SUMMIT BANCORP

China Merchants Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

1ST SUMMIT BANCORP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 1ST SUMMIT BANCORP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak primary indicators, 1ST SUMMIT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Merchants and 1ST SUMMIT

The main advantage of trading using opposite China Merchants and 1ST SUMMIT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, 1ST SUMMIT 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 1ST SUMMIT will offset losses from the drop in 1ST SUMMIT's long position.

The idea behind China Merchants Bank and 1ST SUMMIT BANCORP 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.