Correlation Between Diana Shipping and China Merchants

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

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

Diversification Opportunities for Diana Shipping and China Merchants

-0.37

Correlation Coefficient

Diana Shipping  China Merchants

Very good diversification

The 3 months correlation between Diana and China is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Diana Shipping and China Merchants Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Port and Diana Shipping 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 Diana Shipping 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 Port has no effect on the direction of Diana Shipping i.e., Diana Shipping and China Merchants go up and down completely randomly.

Pair Corralation between Diana Shipping and China Merchants

Considering the 90-day investment horizon Diana Shipping is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Diana Shipping is 2.57 times less risky than China Merchants. The stock trades about -0.03 of its potential returns per unit of risk. The China Merchants Port is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,144  in China Merchants Port on September 25, 2024 and sell it today you would earn a total of  390.00  from holding China Merchants Port or generate 34.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	64.52%
Values	Daily Returns

Diana Shipping  vs.  China Merchants Port

Diana Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diana Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Merchants Port

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, China Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diana Shipping and China Merchants

The main advantage of trading using opposite Diana Shipping and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diana Shipping 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 Diana Shipping and China Merchants Port 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.