Correlation Between Sterling Bancorp and China Merchants

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

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

Diversification Opportunities for Sterling Bancorp and China Merchants

0.08

Correlation Coefficient

Sterling Bancorp  China Merchants

Significant diversification

The 3 months correlation between Sterling and China is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Bancorp 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 Sterling Bancorp 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 Sterling Bancorp 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 Sterling Bancorp i.e., Sterling Bancorp and China Merchants go up and down completely randomly.

Pair Corralation between Sterling Bancorp and China Merchants

Considering the 90-day investment horizon Sterling Bancorp is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Sterling Bancorp is 3.44 times less risky than China Merchants. The stock trades about -0.01 of its potential returns per unit of risk. The China Merchants Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  462.00  in China Merchants Bank on October 27, 2024 and sell it today you would lose (16.00) from holding China Merchants Bank or give up 3.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	68.62%
Values	Daily Returns

Sterling Bancorp  vs.  China Merchants Bank

Sterling Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Sterling Bancorp is not utilizing all of its potentials. The latest 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. Despite fragile performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Sterling Bancorp and China Merchants

The main advantage of trading using opposite Sterling Bancorp and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Bancorp 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 Sterling Bancorp 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.