Correlation Between First Bankers and China Merchants

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

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

Diversification Opportunities for First Bankers and China Merchants

-0.02

Correlation Coefficient

First Bankers  China Merchants

Good diversification

The 3 months correlation between First and China is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Bankers Trustshares 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 First Bankers 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 First Bankers Trustshares 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 First Bankers i.e., First Bankers and China Merchants go up and down completely randomly.

Pair Corralation between First Bankers and China Merchants

Given the investment horizon of 90 days First Bankers Trustshares is expected to under-perform the China Merchants. But the otc stock apears to be less risky and, when comparing its historical volatility, First Bankers Trustshares is 1.93 times less risky than China Merchants. The otc stock trades about -0.02 of its potential returns per unit of risk. The China Merchants Bank is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,316  in China Merchants Bank on October 4, 2024 and sell it today you would earn a total of  209.00  from holding China Merchants Bank or generate 9.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

First Bankers Trustshares  vs.  China Merchants Bank

First Bankers Trustshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Bankers Trustshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, First Bankers is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

China Merchants Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with First Bankers and China Merchants

The main advantage of trading using opposite First Bankers and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Bankers 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 First Bankers Trustshares 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.