Correlation Between First Ottawa and China Merchants

Can any of the company-specific risk be diversified away by investing in both First Ottawa 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 Ottawa 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 Ottawa Bancshares and China Merchants Bank, you can compare the effects of market volatilities on First Ottawa 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 Ottawa with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Ottawa and China Merchants.

Diversification Opportunities for First Ottawa and China Merchants

-0.33

Correlation Coefficient

First Ottawa  China Merchants

Very good diversification

The 3 months correlation between First and China is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding First Ottawa Bancshares 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 Ottawa 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 Ottawa Bancshares 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 Ottawa i.e., First Ottawa and China Merchants go up and down completely randomly.

Pair Corralation between First Ottawa and China Merchants

Given the investment horizon of 90 days First Ottawa Bancshares is expected to generate 0.58 times more return on investment than China Merchants. However, First Ottawa Bancshares is 1.71 times less risky than China Merchants. It trades about 0.07 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.0 per unit of risk. If you would invest  9,400  in First Ottawa Bancshares on October 5, 2024 and sell it today you would earn a total of  3,600  from holding First Ottawa Bancshares or generate 38.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.65%
Values	Daily Returns

First Ottawa Bancshares  vs.  China Merchants Bank

First Ottawa Bancshares

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Ottawa Bancshares are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, First Ottawa sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Ottawa and China Merchants

The main advantage of trading using opposite First Ottawa and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Ottawa 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 Ottawa Bancshares 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.