Correlation Between China Merchants and United Community

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

Diversification Opportunities for China Merchants and United Community

0.77

Correlation Coefficient

China Merchants  United Community

Poor diversification

The 3 months correlation between China and United is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and United Community Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Community Banks 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 United Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Community Banks has no effect on the direction of China Merchants i.e., China Merchants and United Community go up and down completely randomly.

Pair Corralation between China Merchants and United Community

Assuming the 90 days horizon China Merchants Bank is expected to generate 6.07 times more return on investment than United Community. However, China Merchants is 6.07 times more volatile than United Community Banks. It trades about 0.1 of its potential returns per unit of risk. United Community Banks is currently generating about 0.14 per unit of risk. If you would invest  2,070  in China Merchants Bank on August 9, 2024 and sell it today you would earn a total of  494.00  from holding China Merchants Bank or generate 23.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	68.25%
Values	Daily Returns

China Merchants Bank  vs.  United Community Banks

China Merchants Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward-looking signals, China Merchants showed solid returns over the last few months and may actually be approaching a breakup point.

United Community Banks

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days United Community Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, United Community is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with China Merchants and United Community

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

The idea behind China Merchants Bank and United Community Banks 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..