Correlation Between China Merchants and River Financial

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

Diversification Opportunities for China Merchants and River Financial

-0.44

Correlation Coefficient

China Merchants  River Financial

Very good diversification

The 3 months correlation between China and River is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and River Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on River 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 River Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of River Financial has no effect on the direction of China Merchants i.e., China Merchants and River Financial go up and down completely randomly.

Pair Corralation between China Merchants and River Financial

Assuming the 90 days horizon China Merchants Bank is expected to generate 10.15 times more return on investment than River Financial. However, China Merchants is 10.15 times more volatile than River Financial. It trades about 0.07 of its potential returns per unit of risk. River Financial is currently generating about -0.12 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 Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Merchants Bank  vs.  River Financial

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.

River Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days River Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, River Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Merchants and River Financial

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

The idea behind China Merchants Bank and River 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.