Correlation Between China Merchants and Ningbo David

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

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

Diversification Opportunities for China Merchants and Ningbo David

0.88

Correlation Coefficient

China Merchants  Ningbo David

Very poor diversification

The 3 months correlation between China and Ningbo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Ningbo David Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo David Medical 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 Bank are associated (or correlated) with Ningbo David. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo David Medical has no effect on the direction of China Merchants i.e., China Merchants and Ningbo David go up and down completely randomly.

Pair Corralation between China Merchants and Ningbo David

Assuming the 90 days trading horizon China Merchants is expected to generate 1.24 times less return on investment than Ningbo David. But when comparing it to its historical volatility, China Merchants Bank is 1.83 times less risky than Ningbo David. It trades about 0.15 of its potential returns per unit of risk. Ningbo David Medical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,006  in Ningbo David Medical on September 23, 2024 and sell it today you would earn a total of  224.00  from holding Ningbo David Medical or generate 22.27% return on investment over 90 days.

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

China Merchants Bank  vs.  Ningbo David Medical

China Merchants Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 11 (%) 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.

Ningbo David Medical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo David Medical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo David sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Ningbo David

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

The idea behind China Merchants Bank and Ningbo David Medical 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.