Correlation Between China Merchants and Nordea Bank

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

Diversification Opportunities for China Merchants and Nordea Bank

0.11

Correlation Coefficient

China Merchants  Nordea Bank

Average diversification

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

Pair Corralation between China Merchants and Nordea Bank

Assuming the 90 days horizon China Merchants is expected to generate 1.39 times less return on investment than Nordea Bank. In addition to that, China Merchants is 1.73 times more volatile than Nordea Bank Abp. It trades about 0.01 of its total potential returns per unit of risk. Nordea Bank Abp is currently generating about 0.02 per unit of volatility. If you would invest  988.00  in Nordea Bank Abp on September 20, 2024 and sell it today you would earn a total of  122.00  from holding Nordea Bank Abp or generate 12.35% return on investment over 90 days.

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

China Merchants Bank  vs.  Nordea Bank Abp

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

Nordea Bank Abp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordea Bank Abp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Merchants and Nordea Bank

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

The idea behind China Merchants Bank and Nordea Bank Abp 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.