Correlation Between China Merchants and Bangkok Bank

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

Diversification Opportunities for China Merchants and Bangkok Bank

-0.02

Correlation Coefficient

China Merchants  Bangkok Bank

Good diversification

The 3 months correlation between China and Bangkok is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Bangkok Bank PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bangkok Bank PCL 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 Bangkok Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bangkok Bank PCL has no effect on the direction of China Merchants i.e., China Merchants and Bangkok Bank go up and down completely randomly.

Pair Corralation between China Merchants and Bangkok Bank

Assuming the 90 days horizon China Merchants Bank is expected to generate 1.43 times more return on investment than Bangkok Bank. However, China Merchants is 1.43 times more volatile than Bangkok Bank PCL. It trades about 0.05 of its potential returns per unit of risk. Bangkok Bank PCL is currently generating about 0.05 per unit of risk. If you would invest  424.00  in China Merchants Bank on September 5, 2024 and sell it today you would earn a total of  46.00  from holding China Merchants Bank or generate 10.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

China Merchants Bank  vs.  Bangkok Bank PCL

China Merchants Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Bangkok Bank PCL

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bangkok Bank PCL are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Bangkok Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Bangkok Bank

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

The idea behind China Merchants Bank and Bangkok Bank PCL 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.