Correlation Between China Merchants and Tjk Machinery

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

Diversification Opportunities for China Merchants and Tjk Machinery

0.65

Correlation Coefficient

China Merchants  Tjk Machinery

Poor diversification

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

Pair Corralation between China Merchants and Tjk Machinery

Assuming the 90 days trading horizon China Merchants is expected to generate 2.26 times less return on investment than Tjk Machinery. But when comparing it to its historical volatility, China Merchants Bank is 1.99 times less risky than Tjk Machinery. It trades about 0.09 of its potential returns per unit of risk. Tjk Machinery Tianjin is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,095  in Tjk Machinery Tianjin on September 26, 2024 and sell it today you would earn a total of  257.00  from holding Tjk Machinery Tianjin or generate 23.47% return on investment over 90 days.

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

China Merchants Bank  vs.  Tjk Machinery Tianjin

China Merchants Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tjk Machinery Tianjin

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tjk Machinery Tianjin are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tjk Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Tjk Machinery

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

The idea behind China Merchants Bank and Tjk Machinery Tianjin 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.