Correlation Between Deutsche Bank and China Merchants

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Can any of the company-specific risk be diversified away by investing in both Deutsche Bank 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 Deutsche Bank and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Deutsche Bank AG and China Merchants Bank, you can compare the effects of market volatilities on Deutsche Bank 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 Deutsche Bank with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Bank and China Merchants.

Diversification Opportunities for Deutsche Bank and China Merchants

0.12
  Correlation Coefficient

Average diversification

The 3 months correlation between Deutsche and China is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Bank AG 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 Deutsche Bank 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 Deutsche Bank AG 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 Deutsche Bank i.e., Deutsche Bank and China Merchants go up and down completely randomly.

Pair Corralation between Deutsche Bank and China Merchants

Allowing for the 90-day total investment horizon Deutsche Bank AG is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Deutsche Bank AG is 4.62 times less risky than China Merchants. The stock trades about 0.0 of its potential returns per unit of risk. The China Merchants Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  380.00  in China Merchants Bank on September 27, 2024 and sell it today you would earn a total of  108.00  from holding China Merchants Bank or generate 28.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Deutsche Bank AG  vs.  China Merchants Bank

 Performance 
       Timeline  
Deutsche Bank AG 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Deutsche Bank AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Deutsche Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
China Merchants Bank 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Deutsche Bank and China Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Deutsche Bank and China Merchants

The main advantage of trading using opposite Deutsche Bank and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche Bank 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 Deutsche Bank AG 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.
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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