Correlation Between China Merchants and Schweizerische Nationalbank

Can any of the company-specific risk be diversified away by investing in both China Merchants and Schweizerische Nationalbank 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 Schweizerische Nationalbank 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 Schweizerische Nationalbank, you can compare the effects of market volatilities on China Merchants and Schweizerische Nationalbank 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 Schweizerische Nationalbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Schweizerische Nationalbank.

Diversification Opportunities for China Merchants and Schweizerische Nationalbank

-0.73

Correlation Coefficient

China Merchants  Schweizerische Nationalbank

Pay attention - limited upside

The 3 months correlation between China and Schweizerische is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Schweizerische Nationalbank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schweizerische Nationalbank 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 Schweizerische Nationalbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schweizerische Nationalbank has no effect on the direction of China Merchants i.e., China Merchants and Schweizerische Nationalbank go up and down completely randomly.

Pair Corralation between China Merchants and Schweizerische Nationalbank

Assuming the 90 days horizon China Merchants is expected to generate 4.14 times less return on investment than Schweizerische Nationalbank. But when comparing it to its historical volatility, China Merchants Bank is 7.39 times less risky than Schweizerische Nationalbank. It trades about 0.22 of its potential returns per unit of risk. Schweizerische Nationalbank is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  399,297  in Schweizerische Nationalbank on January 28, 2024 and sell it today you would earn a total of  30,703  from holding Schweizerische Nationalbank or generate 7.69% return on investment over 90 days.

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

China Merchants Bank  vs.  Schweizerische Nationalbank

China Merchants Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Schweizerische Nationalbank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schweizerische Nationalbank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with China Merchants and Schweizerische Nationalbank

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

The idea behind China Merchants Bank and Schweizerische Nationalbank 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.