Correlation Between China Merchants and CIB Marine

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

Diversification Opportunities for China Merchants and CIB Marine

-0.62

Correlation Coefficient

China Merchants  CIB Marine

Excellent diversification

The 3 months correlation between China and CIB is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and CIB Marine Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIB Marine Bancshares 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 CIB Marine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIB Marine Bancshares has no effect on the direction of China Merchants i.e., China Merchants and CIB Marine go up and down completely randomly.

Pair Corralation between China Merchants and CIB Marine

Assuming the 90 days horizon China Merchants Bank is expected to generate 2.47 times more return on investment than CIB Marine. However, China Merchants is 2.47 times more volatile than CIB Marine Bancshares. It trades about 0.21 of its potential returns per unit of risk. CIB Marine Bancshares is currently generating about -0.22 per unit of risk. If you would invest  401.00  in China Merchants Bank on February 11, 2024 and sell it today you would earn a total of  64.00  from holding China Merchants Bank or generate 15.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

China Merchants Bank  vs.  CIB Marine Bancshares

China Merchants Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

CIB Marine Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CIB Marine Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with China Merchants and CIB Marine

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

The idea behind China Merchants Bank and CIB Marine Bancshares 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.