Correlation Between BDO Unibank and China Merchants

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

By analyzing existing cross correlation between BDO Unibank ADR and China Merchants Bank, you can compare the effects of market volatilities on BDO Unibank and China Merchants 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 BDO Unibank with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of BDO Unibank and China Merchants.

Diversification Opportunities for BDO Unibank and China Merchants

-0.12

Correlation Coefficient

BDO Unibank  China Merchants

Good diversification

The 3 months correlation between BDO and China is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding BDO Unibank ADR and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank and BDO Unibank 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 BDO Unibank ADR are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of BDO Unibank i.e., BDO Unibank and China Merchants go up and down completely randomly.

Pair Corralation between BDO Unibank and China Merchants

Assuming the 90 days horizon BDO Unibank is expected to generate 2.33 times less return on investment than China Merchants. But when comparing it to its historical volatility, BDO Unibank ADR is 1.36 times less risky than China Merchants. It trades about 0.03 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,837  in China Merchants Bank on September 14, 2024 and sell it today you would earn a total of  628.00  from holding China Merchants Bank or generate 34.19% return on investment over 90 days.

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

BDO Unibank ADR  vs.  China Merchants Bank

BDO Unibank ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BDO Unibank ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Merchants Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BDO Unibank and China Merchants

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

The idea behind BDO Unibank ADR and China Merchants Bank 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..