Correlation Between Nordea Bank and China Merchants

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

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

Diversification Opportunities for Nordea Bank and China Merchants

0.0

Correlation Coefficient

Nordea Bank  China Merchants

Pay attention - limited upside

The 3 months correlation between Nordea and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Nordea Bank Abp 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 Nordea Bank 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 Nordea Bank Abp 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 Nordea Bank i.e., Nordea Bank and China Merchants go up and down completely randomly.

Pair Corralation between Nordea Bank and China Merchants

Assuming the 90 days horizon Nordea Bank Abp is expected to generate 0.58 times more return on investment than China Merchants. However, Nordea Bank Abp is 1.73 times less risky than China Merchants. It trades about 0.02 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.01 per unit of risk. If you would invest  988.00  in Nordea Bank Abp on September 20, 2024 and sell it today you would earn a total of  122.00  from holding Nordea Bank Abp or generate 12.35% return on investment over 90 days.

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

Nordea Bank Abp  vs.  China Merchants Bank

Nordea Bank Abp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordea Bank Abp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Merchants Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nordea Bank and China Merchants

The main advantage of trading using opposite Nordea Bank and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nordea Bank 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 Nordea Bank Abp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.