Correlation Between Citizens Financial and China Merchants

Can any of the company-specific risk be diversified away by investing in both Citizens Financial and China Merchants 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 Citizens Financial and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citizens Financial Corp and China Merchants Bank, you can compare the effects of market volatilities on Citizens Financial and China Merchants 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 Citizens Financial with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citizens Financial and China Merchants.

Diversification Opportunities for Citizens Financial and China Merchants

-0.07

Correlation Coefficient

Citizens Financial  China Merchants

Good diversification

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

Pair Corralation between Citizens Financial and China Merchants

Given the investment horizon of 90 days Citizens Financial is expected to generate 1.16 times less return on investment than China Merchants. But when comparing it to its historical volatility, Citizens Financial Corp is 1.12 times less risky than China Merchants. It trades about 0.08 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,318  in China Merchants Bank on September 20, 2024 and sell it today you would earn a total of  91.00  from holding China Merchants Bank or generate 3.93% return on investment over 90 days.

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

Citizens Financial Corp  vs.  China Merchants Bank

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.

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.

Pair Trading with Citizens Financial and China Merchants

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

The idea behind Citizens Financial Corp and China Merchants Bank 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.