Correlation Between China Merchants and Topsec Technologies

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

By analyzing existing cross correlation between China Merchants Shekou and Topsec Technologies Group, you can compare the effects of market volatilities on China Merchants and Topsec Technologies 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 Topsec Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Topsec Technologies.

Diversification Opportunities for China Merchants and Topsec Technologies

0.65

Correlation Coefficient

China Merchants  Topsec Technologies

Poor diversification

The 3 months correlation between China and Topsec is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Topsec Technologies Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topsec Technologies 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 Shekou are associated (or correlated) with Topsec Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topsec Technologies has no effect on the direction of China Merchants i.e., China Merchants and Topsec Technologies go up and down completely randomly.

Pair Corralation between China Merchants and Topsec Technologies

Assuming the 90 days trading horizon China Merchants is expected to generate 1.64 times less return on investment than Topsec Technologies. But when comparing it to its historical volatility, China Merchants Shekou is 1.17 times less risky than Topsec Technologies. It trades about 0.16 of its potential returns per unit of risk. Topsec Technologies Group is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  416.00  in Topsec Technologies Group on August 31, 2024 and sell it today you would earn a total of  265.00  from holding Topsec Technologies Group or generate 63.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

China Merchants Shekou  vs.  Topsec Technologies Group

China Merchants Shekou

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants sustained solid returns over the last few months and may actually be approaching a breakup point.

Topsec Technologies

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Topsec Technologies Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Topsec Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Topsec Technologies

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

The idea behind China Merchants Shekou and Topsec Technologies Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.