Correlation Between China Vanke and Megaworld Corp

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

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

Diversification Opportunities for China Vanke and Megaworld Corp

0.64

Correlation Coefficient

China Vanke  Megaworld Corp

Poor diversification

The 3 months correlation between China and Megaworld is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Vanke Co and Megaworld Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megaworld Corp ADR and China Vanke 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 Vanke Co are associated (or correlated) with Megaworld Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megaworld Corp ADR has no effect on the direction of China Vanke i.e., China Vanke and Megaworld Corp go up and down completely randomly.

Pair Corralation between China Vanke and Megaworld Corp

Assuming the 90 days horizon China Vanke Co is expected to under-perform the Megaworld Corp. In addition to that, China Vanke is 2.48 times more volatile than Megaworld Corp ADR. It trades about -0.02 of its total potential returns per unit of risk. Megaworld Corp ADR is currently generating about -0.02 per unit of volatility. If you would invest  817.00  in Megaworld Corp ADR on January 30, 2024 and sell it today you would lose (212.00) from holding Megaworld Corp ADR or give up 25.95% of portfolio value over 90 days.

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

China Vanke Co  vs.  Megaworld Corp ADR

China Vanke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Vanke Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Megaworld Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Megaworld Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Vanke and Megaworld Corp

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

The idea behind China Vanke Co and Megaworld Corp ADR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.