Correlation Between China CITIC and China Merchants

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

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

Diversification Opportunities for China CITIC and China Merchants

0.58

Correlation Coefficient

China CITIC  China Merchants

Very weak diversification

The 3 months correlation between China and China is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding China CITIC Bank 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 China CITIC 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 CITIC Bank 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 China CITIC i.e., China CITIC and China Merchants go up and down completely randomly.

Pair Corralation between China CITIC and China Merchants

If you would invest  59.00  in China CITIC Bank on September 4, 2024 and sell it today you would earn a total of  0.00  from holding China CITIC Bank or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	4.76%
Values	Daily Returns

China CITIC Bank  vs.  China Merchants Bank

China CITIC Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China CITIC Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, China CITIC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Merchants Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 5 (%) 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 China CITIC and China Merchants

The main advantage of trading using opposite China CITIC and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China CITIC 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 China CITIC Bank 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.