Correlation Between China Merchants and Sunny Loan

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

Diversification Opportunities for China Merchants and Sunny Loan

0.46

Correlation Coefficient

China Merchants  Sunny Loan

Very weak diversification

The 3 months correlation between China and Sunny is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Sunny Loan Top in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunny Loan Top 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 Sunny Loan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunny Loan Top has no effect on the direction of China Merchants i.e., China Merchants and Sunny Loan go up and down completely randomly.

Pair Corralation between China Merchants and Sunny Loan

Assuming the 90 days trading horizon China Merchants is expected to generate 1.35 times less return on investment than Sunny Loan. But when comparing it to its historical volatility, China Merchants Shekou is 1.32 times less risky than Sunny Loan. It trades about 0.15 of its potential returns per unit of risk. Sunny Loan Top is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  798.00  in Sunny Loan Top on September 5, 2024 and sell it today you would earn a total of  339.00  from holding Sunny Loan Top or generate 42.48% return on investment over 90 days.

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

China Merchants Shekou  vs.  Sunny Loan Top

China Merchants Shekou

Risk-Adjusted Performance

12 of 100

Good

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.

Sunny Loan Top

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with China Merchants and Sunny Loan

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

The idea behind China Merchants Shekou and Sunny Loan Top 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.