Correlation Between China Merchants and BRADESCO

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

Diversification Opportunities for China Merchants and BRADESCO

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between China and BRADESCO is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and BRADESCO PN EJ N1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRADESCO PN EJ 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 BRADESCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRADESCO PN EJ has no effect on the direction of China Merchants i.e., China Merchants and BRADESCO go up and down completely randomly.

Pair Corralation between China Merchants and BRADESCO

Assuming the 90 days horizon China Merchants Bank is expected to generate 1.61 times more return on investment than BRADESCO. However, China Merchants is 1.61 times more volatile than BRADESCO PN EJ. It trades about 0.1 of its potential returns per unit of risk. BRADESCO PN EJ is currently generating about 0.0 per unit of risk. If you would invest  2,970  in China Merchants Bank on March 29, 2022 and sell it today you would earn a total of  281.00  from holding China Merchants Bank or generate 9.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

China Merchants Bank  vs.  BRADESCO PN EJ N1

 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 weak performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0374
Payout Ratio
0.68
Forward Annual Dividend Rate
1.14
Dividend Date
2022-08-25
Ex Dividend Date
2022-07-06

China Price Channel

BRADESCO PN EJ 
BRADESCO Performance
0 of 100
Over the last 90 days BRADESCO PN EJ has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

BRADESCO Price Channel

China Merchants and BRADESCO Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with China Merchants and BRADESCO

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

China Merchants Bank

Pair trading matchups for China Merchants

Micron Technology vs. China Merchants
Northrop Grumman vs. China Merchants
Chevron Corp vs. China Merchants
Conagra Brands vs. China Merchants
Home Depot vs. China Merchants
Merck vs. China Merchants
Cincinnati Financial vs. China Merchants
Verizon Communications vs. China Merchants
Teucrium Corn vs. China Merchants
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against China Merchants as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. China Merchants' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, China Merchants' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to China Merchants Bank.
The idea behind China Merchants Bank and BRADESCO PN EJ 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.

BRADESCO PN EJ

Pair trading matchups for BRADESCO

Cincinnati Financial vs. BRADESCO
Micron Technology vs. BRADESCO
Chevron Corp vs. BRADESCO
Verizon Communications vs. BRADESCO
Conagra Brands vs. BRADESCO
Northrop Grumman vs. BRADESCO
Home Depot vs. BRADESCO
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against BRADESCO as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. BRADESCO's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, BRADESCO's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to BRADESCO PN EJ.
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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