Correlation Between China Merchants and Dow Jones
Can any of the company-specific risk be diversified away by investing in both China Merchants and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on China Merchants and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Dow Jones.
Diversification Opportunities for China Merchants and Dow Jones
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between China and Dow is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of China Merchants i.e., China Merchants and Dow Jones go up and down completely randomly.
Pair Corralation between China Merchants and Dow Jones
Assuming the 90 days horizon China Merchants Bank is expected to generate 10.53 times more return on investment than Dow Jones. However, China Merchants is 10.53 times more volatile than Dow Jones Industrial. It trades about 0.1 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.16 per unit of risk. If you would invest 206.00 in China Merchants Bank on September 1, 2024 and sell it today you would earn a total of 217.00 from holding China Merchants Bank or generate 105.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 96.18% |
| Values | Daily Returns |
China Merchants Bank vs. Dow Jones Industrial
Performance |
| Timeline |
China Merchants and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
China Merchants Bank
Pair trading matchups for China Merchants
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with China Merchants and Dow Jones
The main advantage of trading using opposite China Merchants and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.The idea behind China Merchants Bank and Dow Jones Industrial 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.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
Other Complementary Tools
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. |