Correlation Between ZIM Integrated and China Merchants

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

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

Diversification Opportunities for ZIM Integrated and China Merchants

0.58

Correlation Coefficient

ZIM Integrated  China Merchants

Very weak diversification

The 3 months correlation between ZIM and China is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ZIM Integrated Shipping and China Merchants Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Port and ZIM Integrated 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 ZIM Integrated Shipping 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 Port has no effect on the direction of ZIM Integrated i.e., ZIM Integrated and China Merchants go up and down completely randomly.

Pair Corralation between ZIM Integrated and China Merchants

Considering the 90-day investment horizon ZIM Integrated is expected to generate 1.11 times less return on investment than China Merchants. But when comparing it to its historical volatility, ZIM Integrated Shipping is 1.21 times less risky than China Merchants. It trades about 0.05 of its potential returns per unit of risk. China Merchants Port is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,144  in China Merchants Port on September 20, 2024 and sell it today you would earn a total of  451.00  from holding China Merchants Port or generate 39.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	64.52%
Values	Daily Returns

ZIM Integrated Shipping  vs.  China Merchants Port

ZIM Integrated Shipping

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ZIM Integrated Shipping are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, ZIM Integrated displayed solid returns over the last few months and may actually be approaching a breakup point.

China Merchants Port

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, China Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ZIM Integrated and China Merchants

The main advantage of trading using opposite ZIM Integrated and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ZIM Integrated 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 ZIM Integrated Shipping and China Merchants Port 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.