Correlation Between China Merchants and United Overseas

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Can any of the company-specific risk be diversified away by investing in both China Merchants and United Overseas 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 United Overseas 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 United Overseas Bank, you can compare the effects of market volatilities on China Merchants and United Overseas 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 United Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and United Overseas.

Diversification Opportunities for China Merchants and United Overseas

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between China and United is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and United Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Overseas Bank 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 United Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Overseas Bank has no effect on the direction of China Merchants i.e., China Merchants and United Overseas go up and down completely randomly.

Pair Corralation between China Merchants and United Overseas

Assuming the 90 days horizon China Merchants Bank is expected to under-perform the United Overseas. In addition to that, China Merchants is 1.83 times more volatile than United Overseas Bank. It trades about -0.04 of its total potential returns per unit of risk. United Overseas Bank is currently generating about 0.07 per unit of volatility. If you would invest  2,545  in United Overseas Bank on September 10, 2024 and sell it today you would earn a total of  36.00  from holding United Overseas Bank or generate 1.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

China Merchants Bank  vs.  United Overseas Bank

 Performance 
       Timeline  
China Merchants Bank 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.
United Overseas Bank 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, United Overseas reported solid returns over the last few months and may actually be approaching a breakup point.

China Merchants and United Overseas Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Merchants and United Overseas

The main advantage of trading using opposite China Merchants and United Overseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, United Overseas 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 United Overseas will offset losses from the drop in United Overseas' long position.
The idea behind China Merchants Bank and United Overseas 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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