Correlation Between China Merchants and Alpha Bank
Can any of the company-specific risk be diversified away by investing in both China Merchants and Alpha Bank 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 Alpha Bank 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 Alpha Bank SA, you can compare the effects of market volatilities on China Merchants and Alpha Bank 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 Alpha Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Alpha Bank.
Diversification Opportunities for China Merchants and Alpha Bank
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and Alpha is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Alpha Bank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Bank SA 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 Alpha Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Bank SA has no effect on the direction of China Merchants i.e., China Merchants and Alpha Bank go up and down completely randomly.
Pair Corralation between China Merchants and Alpha Bank
Assuming the 90 days horizon China Merchants Bank is expected to under-perform the Alpha Bank. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Merchants Bank is 1.2 times less risky than Alpha Bank. The pink sheet trades about -0.21 of its potential returns per unit of risk. The Alpha Bank SA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 39.00 in Alpha Bank SA on August 29, 2024 and sell it today you would lose (2.00) from holding Alpha Bank SA or give up 5.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Merchants Bank vs. Alpha Bank SA
Performance |
| Timeline |
| China Merchants Bank |
| Alpha Bank SA |
China Merchants and Alpha Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Merchants and Alpha Bank
The main advantage of trading using opposite China Merchants and Alpha Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, Alpha Bank 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 Alpha Bank will offset losses from the drop in Alpha Bank's long position.| China Merchants vs. China Everbright Bank | China Merchants vs. Postal Savings Bank | China Merchants vs. China Citic Bank | China Merchants vs. China Merchants Bank |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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