Correlation Between China Merchants and Nippon Yusen

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

By analyzing existing cross correlation between China Merchants Port and Nippon Yusen Kabushiki, you can compare the effects of market volatilities on China Merchants and Nippon Yusen 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 Nippon Yusen. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Nippon Yusen.

Diversification Opportunities for China Merchants and Nippon Yusen

-0.22

Correlation Coefficient

China Merchants  Nippon Yusen

Very good diversification

The 3 months correlation between China and Nippon is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Port and Nippon Yusen Kabushiki in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Yusen Kabushiki 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 Port are associated (or correlated) with Nippon Yusen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Yusen Kabushiki has no effect on the direction of China Merchants i.e., China Merchants and Nippon Yusen go up and down completely randomly.

Pair Corralation between China Merchants and Nippon Yusen

Assuming the 90 days horizon China Merchants Port is expected to generate 1.74 times more return on investment than Nippon Yusen. However, China Merchants is 1.74 times more volatile than Nippon Yusen Kabushiki. It trades about 0.14 of its potential returns per unit of risk. Nippon Yusen Kabushiki is currently generating about 0.0 per unit of risk. If you would invest  114.00  in China Merchants Port on September 23, 2024 and sell it today you would earn a total of  37.00  from holding China Merchants Port or generate 32.46% return on investment over 90 days.

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

China Merchants Port  vs.  Nippon Yusen Kabushiki

China Merchants Port

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Nippon Yusen Kabushiki

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Merchants and Nippon Yusen

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

The idea behind China Merchants Port and Nippon Yusen Kabushiki 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.