Correlation Between China Merchants and Shenzhen Fortune

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

Diversification Opportunities for China Merchants and Shenzhen Fortune

0.85

Correlation Coefficient

China Merchants  Shenzhen Fortune

Very poor diversification

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

Pair Corralation between China Merchants and Shenzhen Fortune

Assuming the 90 days trading horizon China Merchants is expected to generate 3.84 times less return on investment than Shenzhen Fortune. But when comparing it to its historical volatility, China Merchants Bank is 3.3 times less risky than Shenzhen Fortune. It trades about 0.19 of its potential returns per unit of risk. Shenzhen Fortune Trend is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  8,839  in Shenzhen Fortune Trend on September 12, 2024 and sell it today you would earn a total of  10,749  from holding Shenzhen Fortune Trend or generate 121.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

China Merchants Bank  vs.  Shenzhen Fortune Trend

China Merchants Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 15 (%) 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.

Shenzhen Fortune Trend

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Fortune Trend are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Fortune sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Shenzhen Fortune

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

The idea behind China Merchants Bank and Shenzhen Fortune Trend 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.