Correlation Between China Merchants and Alphabet

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

Diversification Opportunities for China Merchants and Alphabet

0.15
  Correlation Coefficient

Average diversification

The 3 months correlation between China and Alphabet is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and Alphabet Cl A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Cl A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Cl A has no effect on the direction of China Merchants i.e., China Merchants and Alphabet go up and down completely randomly.

Pair Corralation between China Merchants and Alphabet

Assuming the 90 days horizon China Merchants Bank is expected to generate 1.34 times more return on investment than Alphabet. However, China Merchants is 1.34 times more volatile than Alphabet Cl A. It trades about 0.03 of its potential returns per unit of risk. Alphabet Cl A is currently generating about 0.03 per unit of risk. If you would invest  407.00  in China Merchants Bank on July 3, 2022 and sell it today you would earn a total of  123.00  from holding China Merchants Bank or generate 30.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

China Merchants Bank  vs.  Alphabet Cl A

 Performance (%) 
       Timeline  
China Merchants Bank 
China Performance
0 of 100
Over the last 90 days China Merchants Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in November 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

China Price Channel

Alphabet Cl A 
Alphabet Performance
0 of 100
Over the last 90 days Alphabet Cl A has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively steady which may send shares a bit higher in November 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Alphabet Price Channel

China Merchants and Alphabet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Merchants and Alphabet

The main advantage of trading using opposite China Merchants and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.
China Merchants vs. Amazon Inc
The idea behind China Merchants Bank and Alphabet Cl A 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.
Alphabet vs. Tencent Holdings
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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