Correlation Between China Merchants and Orient Overseas

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

By analyzing existing cross correlation between China Merchants Port and Orient Overseas Limited, you can compare the effects of market volatilities on China Merchants and Orient Overseas 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 Orient Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Orient Overseas.

Diversification Opportunities for China Merchants and Orient Overseas

0.08

Correlation Coefficient

China Merchants  Orient Overseas

Significant diversification

The 3 months correlation between China and Orient is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Port and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas 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 Port are associated (or correlated) with Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of China Merchants i.e., China Merchants and Orient Overseas go up and down completely randomly.

Pair Corralation between China Merchants and Orient Overseas

Assuming the 90 days horizon China Merchants is expected to generate 6.69 times less return on investment than Orient Overseas. But when comparing it to its historical volatility, China Merchants Port is 3.44 times less risky than Orient Overseas. It trades about 0.03 of its potential returns per unit of risk. Orient Overseas Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,745  in Orient Overseas Limited on September 29, 2024 and sell it today you would lose (500.00) from holding Orient Overseas Limited or give up 28.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.38%
Values	Daily Returns

China Merchants Port  vs.  Orient Overseas Limited

China Merchants Port

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Orient Overseas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orient Overseas Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Merchants and Orient Overseas

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

The idea behind China Merchants Port and Orient Overseas Limited 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.