Correlation Between China Securities and SP Merval

Can any of the company-specific risk be diversified away by investing in both China Securities and SP Merval 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 Securities and SP Merval into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Securities 800 and SP Merval, you can compare the effects of market volatilities on China Securities and SP Merval 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 Securities with a short position of SP Merval. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and SP Merval.

Diversification Opportunities for China Securities and SP Merval

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Correlation Coefficient

China Securities  SP Merval

Pay attention - limited upside

The 3 months correlation between China and MERV is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and SP Merval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Merval and China Securities 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 Securities 800 are associated (or correlated) with SP Merval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Merval has no effect on the direction of China Securities i.e., China Securities and SP Merval go up and down completely randomly.

Pair Corralation between China Securities and SP Merval

If you would invest  353,107  in China Securities 800 on August 30, 2024 and sell it today you would earn a total of  68,474  from holding China Securities 800 or generate 19.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

China Securities 800  vs.  SP Merval

Pair Trading with China Securities and SP Merval

The main advantage of trading using opposite China Securities and SP Merval positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Securities position performs unexpectedly, SP Merval 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 SP Merval will offset losses from the drop in SP Merval's long position.

The idea behind China Securities 800 and SP Merval 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.