Correlation Between Bbva Banco and China Merchants

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

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

Diversification Opportunities for Bbva Banco and China Merchants

0.45
  Correlation Coefficient
Bbva Banco Frances
China Merchants Bank

Very weak diversification

The 6 months correlation between Bbva Banco and China is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Bbva Banco Frances 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 Bbva Banco 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 Bbva Banco Frances 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 Bbva Banco i.e., Bbva Banco and China Merchants go up and down completely randomly.

Pair Corralation between Bbva Banco and China Merchants

Given the investment horizon of 90 days Bbva Banco Frances is expected to generate 1.51 times more return on investment than China Merchants. However, Bbva Banco is 1.51 times more volatile than China Merchants Bank. It trades about -0.03 of its potential returns per unit of risk. China Merchants Bank is currently generating about -0.23 per unit of risk. If you would invest  389.00  in Bbva Banco Frances on June 26, 2021 and sell it today you would lose (17.00)  from holding Bbva Banco Frances or give up 4.37% of portfolio value over 90 days.
Time Period6 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.24%
ValuesDaily Returns

Bbva Banco Frances  vs.  China Merchants Bank

 Performance (%) 
      Timeline 
Bbva Banco Frances 
 Bbva Banco Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bbva Banco Frances are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bbva Banco reported solid returns over the last few months and may actually be approaching a breakup point.

Bbva Banco Price Channel

China Merchants Bank 
 China Performance
0 of 100
Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, China Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Price Channel

Bbva Banco and China Merchants Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Bbva Banco and China Merchants

The main advantage of trading using opposite Bbva Banco and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bbva Banco 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 Bbva Banco Frances 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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