Correlation Between China Merchants and Datang International

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

Diversification Opportunities for China Merchants and Datang International

-0.44

Correlation Coefficient

China Merchants  Datang International

Very good diversification

The 3 months correlation between China and Datang is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Port and Datang International Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datang International 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 Datang International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datang International has no effect on the direction of China Merchants i.e., China Merchants and Datang International go up and down completely randomly.

Pair Corralation between China Merchants and Datang International

Assuming the 90 days horizon China Merchants Port is expected to generate 3.86 times more return on investment than Datang International. However, China Merchants is 3.86 times more volatile than Datang International Power. It trades about 0.1 of its potential returns per unit of risk. Datang International Power is currently generating about 0.17 per unit of risk. If you would invest  131.00  in China Merchants Port on May 5, 2025 and sell it today you would earn a total of  43.00  from holding China Merchants Port or generate 32.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	53.97%
Values	Daily Returns

China Merchants Port  vs.  Datang International Power

China Merchants Port

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 8 (%) 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.

Datang International

Risk-Adjusted Performance

Good

Over the last 90 days Datang International Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile technical and fundamental indicators, Datang International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Datang International

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

The idea behind China Merchants Port and Datang International Power 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.