Correlation Between China Merchants and BCEG Environmental

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

Diversification Opportunities for China Merchants and BCEG Environmental

0.87

Correlation Coefficient

China Merchants  BCEG Environmental

Very poor diversification

The 3 months correlation between China and BCEG is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and BCEG Environmental Remediation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCEG Environmental 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 BCEG Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCEG Environmental has no effect on the direction of China Merchants i.e., China Merchants and BCEG Environmental go up and down completely randomly.

Pair Corralation between China Merchants and BCEG Environmental

Assuming the 90 days trading horizon China Merchants is expected to generate 1.88 times less return on investment than BCEG Environmental. But when comparing it to its historical volatility, China Merchants Bank is 1.48 times less risky than BCEG Environmental. It trades about 0.15 of its potential returns per unit of risk. BCEG Environmental Remediation is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  959.00  in BCEG Environmental Remediation on September 16, 2024 and sell it today you would earn a total of  382.00  from holding BCEG Environmental Remediation or generate 39.83% 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.  BCEG Environmental Remediation

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.

BCEG Environmental

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BCEG Environmental Remediation are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BCEG Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and BCEG Environmental

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

The idea behind China Merchants Bank and BCEG Environmental Remediation 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.