Correlation Between PT Bank and China Merchants

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

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

Diversification Opportunities for PT Bank and China Merchants

-0.3

Correlation Coefficient

PT Bank  China Merchants

Very good diversification

The 3 months correlation between PQ9 and China is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Mandiri 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 PT Bank 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 PT Bank Mandiri 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 PT Bank i.e., PT Bank and China Merchants go up and down completely randomly.

Pair Corralation between PT Bank and China Merchants

Assuming the 90 days horizon PT Bank Mandiri is expected to under-perform the China Merchants. In addition to that, PT Bank is 1.88 times more volatile than China Merchants Bank. It trades about -0.08 of its total potential returns per unit of risk. China Merchants Bank is currently generating about -0.04 per unit of volatility. If you would invest  452.00  in China Merchants Bank on September 5, 2024 and sell it today you would lose (13.00) from holding China Merchants Bank or give up 2.88% of portfolio value over 90 days.

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

PT Bank Mandiri  vs.  China Merchants Bank

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. Despite nearly fragile basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Bank and China Merchants

The main advantage of trading using opposite PT Bank and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Bank 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 PT Bank Mandiri 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..