Correlation Between China Merchants and Guilin Seamild

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

Diversification Opportunities for China Merchants and Guilin Seamild

0.85

Correlation Coefficient

China Merchants  Guilin Seamild

Very poor diversification

The 3 months correlation between China and Guilin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Guilin Seamild Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guilin Seamild Foods 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 Guilin Seamild. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guilin Seamild Foods has no effect on the direction of China Merchants i.e., China Merchants and Guilin Seamild go up and down completely randomly.

Pair Corralation between China Merchants and Guilin Seamild

Assuming the 90 days trading horizon China Merchants Shekou is expected to generate 1.27 times more return on investment than Guilin Seamild. However, China Merchants is 1.27 times more volatile than Guilin Seamild Foods. It trades about 0.17 of its potential returns per unit of risk. Guilin Seamild Foods is currently generating about 0.2 per unit of risk. If you would invest  880.00  in China Merchants Shekou on September 4, 2024 and sell it today you would earn a total of  305.00  from holding China Merchants Shekou or generate 34.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

China Merchants Shekou  vs.  Guilin Seamild Foods

China Merchants Shekou

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 13 (%) 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.

Guilin Seamild Foods

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guilin Seamild Foods are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guilin Seamild sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Guilin Seamild

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

The idea behind China Merchants Shekou and Guilin Seamild Foods 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.