Correlation Between China Merchants and MAROC TELECOM

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

Diversification Opportunities for China Merchants and MAROC TELECOM

0.31

Correlation Coefficient

China Merchants  MAROC TELECOM

Weak diversification

The 3 months correlation between China and MAROC is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Port and MAROC TELECOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAROC TELECOM 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 MAROC TELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAROC TELECOM has no effect on the direction of China Merchants i.e., China Merchants and MAROC TELECOM go up and down completely randomly.

Pair Corralation between China Merchants and MAROC TELECOM

Assuming the 90 days horizon China Merchants Port is expected to generate 0.86 times more return on investment than MAROC TELECOM. However, China Merchants Port is 1.17 times less risky than MAROC TELECOM. It trades about 0.12 of its potential returns per unit of risk. MAROC TELECOM is currently generating about 0.06 per unit of risk. If you would invest  43.00  in China Merchants Port on September 27, 2024 and sell it today you would earn a total of  114.00  from holding China Merchants Port or generate 265.12% return on investment over 90 days.

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

China Merchants Port  vs.  MAROC TELECOM

China Merchants Port

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

MAROC TELECOM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MAROC TELECOM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, MAROC TELECOM is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with China Merchants and MAROC TELECOM

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

The idea behind China Merchants Port and MAROC TELECOM 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.