Correlation Between Bank Central and China Merchants
Can any of the company-specific risk be diversified away by investing in both Bank Central 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 Bank Central and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank Central Asia and China Merchants Bank, you can compare the effects of market volatilities on Bank Central 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 Bank Central with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Central and China Merchants.
Diversification Opportunities for Bank Central and China Merchants
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Bank and China is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia 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 Bank Central 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 Bank Central Asia 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 Bank Central i.e., Bank Central and China Merchants go up and down completely randomly.
Pair Corralation between Bank Central and China Merchants
Assuming the 90 days horizon Bank Central is expected to generate 3.35 times less return on investment than China Merchants. But when comparing it to its historical volatility, Bank Central Asia is 4.37 times less risky than China Merchants. It trades about 0.03 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 523.00 in China Merchants Bank on August 24, 2024 and sell it today you would lose (53.00) from holding China Merchants Bank or give up 10.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 68.75% |
| Values | Daily Returns |
Bank Central Asia vs. China Merchants Bank
Performance |
| Timeline |
| Bank Central Asia |
| China Merchants Bank |
Bank Central and China Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank Central and China Merchants
The main advantage of trading using opposite Bank Central and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Central 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.| Bank Central vs. Nedbank Group | Bank Central vs. Standard Bank Group | Bank Central vs. Kasikornbank Public Co | Bank Central vs. KBC Groep NV |
| China Merchants vs. Nedbank Group | China Merchants vs. Standard Bank Group | China Merchants vs. Bank Central Asia | China Merchants vs. PSB Holdings |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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