Correlation Between China Merchants and Magyar Bancorp

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

Diversification Opportunities for China Merchants and Magyar Bancorp

-0.02

Correlation Coefficient

China Merchants  Magyar Bancorp

Good diversification

The 3 months correlation between China and Magyar is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Magyar Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magyar 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 Magyar Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magyar Bancorp has no effect on the direction of China Merchants i.e., China Merchants and Magyar Bancorp go up and down completely randomly.

Pair Corralation between China Merchants and Magyar Bancorp

Assuming the 90 days horizon China Merchants Bank is expected to generate 4.57 times more return on investment than Magyar Bancorp. However, China Merchants is 4.57 times more volatile than Magyar Bancorp. It trades about 0.08 of its potential returns per unit of risk. Magyar Bancorp is currently generating about 0.25 per unit of risk. If you would invest  1,979  in China Merchants Bank on September 2, 2024 and sell it today you would earn a total of  324.00  from holding China Merchants Bank or generate 16.37% return on investment over 90 days.

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

China Merchants Bank  vs.  Magyar 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 weak forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

Magyar Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Magyar Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Magyar Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Magyar Bancorp

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

The idea behind China Merchants Bank and Magyar 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.