Correlation Between China Merchants and SVB Financial

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

Diversification Opportunities for China Merchants and SVB Financial

-0.87

Correlation Coefficient

China Merchants  SVB Financial

Pay attention - limited upside

The 3 months correlation between China and SVB is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and SVB Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SVB Financial Group 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 SVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SVB Financial Group has no effect on the direction of China Merchants i.e., China Merchants and SVB Financial go up and down completely randomly.

Pair Corralation between China Merchants and SVB Financial

If you would invest  393.00  in China Merchants Bank on January 20, 2024 and sell it today you would earn a total of  8.00  from holding China Merchants Bank or generate 2.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	4.76%
Values	Daily Returns

China Merchants Bank  vs.  SVB Financial Group

China Merchants Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

SVB Financial Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SVB Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, SVB Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with China Merchants and SVB Financial

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

The idea behind China Merchants Bank and SVB Financial Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..