Correlation Between Bank of the and China Merchants
Can any of the company-specific risk be diversified away by investing in both Bank of the 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 Bank of the and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of the and China Merchants Bank, you can compare the effects of market volatilities on Bank of the 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 Bank of the with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of the and China Merchants.
Diversification Opportunities for Bank of the and China Merchants
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bank and China is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Bank of the 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 Bank of the 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 Bank of the 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 Bank of the i.e., Bank of the and China Merchants go up and down completely randomly.
Pair Corralation between Bank of the and China Merchants
Assuming the 90 days horizon Bank of the is expected to generate 4.56 times more return on investment than China Merchants. However, Bank of the is 4.56 times more volatile than China Merchants Bank. It trades about 0.09 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.22 per unit of risk. If you would invest 4,303 in Bank of the on January 26, 2024 and sell it today you would earn a total of 162.00 from holding Bank of the or generate 3.76% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.45% |
Values | Daily Returns |
Bank of the vs. China Merchants Bank
Performance |
Timeline |
Bank of the |
China Merchants Bank |
Bank of the and China Merchants Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bank of the and China Merchants
The main advantage of trading using opposite Bank of the and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of the 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.Bank of the vs. Lloyds Banking Group | Bank of the vs. Western Alliance Bancorporation | Bank of the vs. JAPAN POST BANK | Bank of the vs. Piraeus Bank SA |
China Merchants vs. Lloyds Banking Group | China Merchants vs. Western Alliance Bancorporation | China Merchants vs. JAPAN POST BANK | China Merchants vs. Piraeus Bank SA |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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