Correlation Between KB Financial and China Merchants

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

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

Diversification Opportunities for KB Financial and China Merchants

-0.65

Correlation Coefficient

KB Financial  China Merchants

Excellent diversification

The 3 months correlation between KBIA and China is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding KB Financial Group 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 KB Financial 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 KB Financial Group 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 KB Financial i.e., KB Financial and China Merchants go up and down completely randomly.

Pair Corralation between KB Financial and China Merchants

Assuming the 90 days trading horizon KB Financial Group is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, KB Financial Group is 1.02 times less risky than China Merchants. The stock trades about -0.02 of its potential returns per unit of risk. The China Merchants Bank is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  486.00  in China Merchants Bank on December 28, 2024 and sell it today you would earn a total of  64.00  from holding China Merchants Bank or generate 13.17% return on investment over 90 days.

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

KB Financial Group  vs.  China Merchants Bank

KB Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days KB Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, KB Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Merchants Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KB Financial and China Merchants

The main advantage of trading using opposite KB Financial and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Financial 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 KB Financial Group 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.