Correlation Between China Merchants and Woodlands Financial
Can any of the company-specific risk be diversified away by investing in both China Merchants and Woodlands 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 Woodlands 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 Woodlands Financial Services, you can compare the effects of market volatilities on China Merchants and Woodlands 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 Woodlands Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Woodlands Financial.
Diversification Opportunities for China Merchants and Woodlands Financial
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Woodlands is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Woodlands Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodlands Financial 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 Woodlands Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodlands Financial has no effect on the direction of China Merchants i.e., China Merchants and Woodlands Financial go up and down completely randomly.
Pair Corralation between China Merchants and Woodlands Financial
Assuming the 90 days horizon China Merchants Bank is expected to under-perform the Woodlands Financial. In addition to that, China Merchants is 1.89 times more volatile than Woodlands Financial Services. It trades about -0.21 of its total potential returns per unit of risk. Woodlands Financial Services is currently generating about -0.09 per unit of volatility. If you would invest 2,094 in Woodlands Financial Services on August 29, 2024 and sell it today you would lose (79.00) from holding Woodlands Financial Services or give up 3.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Merchants Bank vs. Woodlands Financial Services
Performance |
| Timeline |
| China Merchants Bank |
| Woodlands Financial |
China Merchants and Woodlands Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Merchants and Woodlands Financial
The main advantage of trading using opposite China Merchants and Woodlands Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, Woodlands 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 Woodlands Financial will offset losses from the drop in Woodlands Financial'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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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