Correlation Between China Merchants and DBS Group

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

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

Diversification Opportunities for China Merchants and DBS Group

-0.09

Correlation Coefficient

China Merchants  DBS Group

Good diversification

The 3 months correlation between China and DBS is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and DBS Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DBS Group Holdings and China Merchants 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 China Merchants Bank are associated (or correlated) with DBS Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DBS Group Holdings has no effect on the direction of China Merchants i.e., China Merchants and DBS Group go up and down completely randomly.

Pair Corralation between China Merchants and DBS Group

Assuming the 90 days horizon China Merchants Bank is expected to generate 4.54 times more return on investment than DBS Group. However, China Merchants is 4.54 times more volatile than DBS Group Holdings. It trades about 0.1 of its potential returns per unit of risk. DBS Group Holdings is currently generating about 0.16 per unit of risk. If you would invest  151.00  in China Merchants Bank on October 10, 2024 and sell it today you would earn a total of  327.00  from holding China Merchants Bank or generate 216.56% return on investment over 90 days.

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

China Merchants Bank  vs.  DBS Group Holdings

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. Despite nearly stable basic indicators, China Merchants is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

DBS Group Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DBS Group Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, DBS Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and DBS Group

The main advantage of trading using opposite China Merchants and DBS Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, DBS Group 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 DBS Group will offset losses from the drop in DBS Group's long position.

The idea behind China Merchants Bank and DBS Group Holdings 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.