Correlation Between Old National and China Merchants

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

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

Diversification Opportunities for Old National and China Merchants

0.0

Correlation Coefficient

Old National  China Merchants

Pay attention - limited upside

The 3 months correlation between Old and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Old National Bancorp 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 Old National 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 Old National Bancorp 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 Old National i.e., Old National and China Merchants go up and down completely randomly.

Pair Corralation between Old National and China Merchants

Considering the 90-day investment horizon Old National Bancorp is expected to generate 0.84 times more return on investment than China Merchants. However, Old National Bancorp is 1.19 times less risky than China Merchants. It trades about 0.06 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.0 per unit of risk. If you would invest  1,341  in Old National Bancorp on January 24, 2024 and sell it today you would earn a total of  305.00  from holding Old National Bancorp or generate 22.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Old National Bancorp  vs.  China Merchants Bank

Old National Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Old National Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Old National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Merchants Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Old National and China Merchants

The main advantage of trading using opposite Old National and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old National 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 Old National Bancorp 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 the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.