Correlation Between Central Pacific and China Merchants
Can any of the company-specific risk be diversified away by investing in both Central Pacific 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 Central Pacific and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Central Pacific Financial and China Merchants Bank, you can compare the effects of market volatilities on Central Pacific 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 Central Pacific with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Pacific and China Merchants.
Diversification Opportunities for Central Pacific and China Merchants
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Central and China is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Central Pacific Financial 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 Central Pacific 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 Central Pacific Financial 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 Central Pacific i.e., Central Pacific and China Merchants go up and down completely randomly.
Pair Corralation between Central Pacific and China Merchants
Considering the 90-day investment horizon Central Pacific Financial is expected to generate 0.85 times more return on investment than China Merchants. However, Central Pacific Financial is 1.17 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 0.01 per unit of risk. If you would invest 1,757 in Central Pacific Financial on September 4, 2024 and sell it today you would earn a total of 1,384 from holding Central Pacific Financial or generate 78.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Central Pacific Financial vs. China Merchants Bank
Performance |
| Timeline |
| Central Pacific Financial |
| China Merchants Bank |
Central Pacific and China Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Central Pacific and China Merchants
The main advantage of trading using opposite Central Pacific and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Pacific 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.| Central Pacific vs. Bank of Hawaii | Central Pacific vs. Territorial Bancorp | Central Pacific vs. First Bancorp | Central Pacific vs. Hancock Whitney Corp |
| China Merchants vs. China Everbright Bank | China Merchants vs. China Merchants Bank | China Merchants vs. Postal Savings Bank | China Merchants vs. China Citic 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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