Correlation Between China Merchants and US Bancorp

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

Diversification Opportunities for China Merchants and US Bancorp

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between China and US Bancorp is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Bank and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of China Merchants i.e., China Merchants and US Bancorp go up and down completely randomly.

Pair Corralation between China Merchants and US Bancorp

Assuming the 90 days horizon China Merchants Bank is expected to generate 1.35 times more return on investment than US Bancorp. However, China Merchants is 1.35 times more volatile than US Bancorp. It trades about 0.1 of its potential returns per unit of risk. US Bancorp is currently generating about -0.04 per unit of risk. If you would invest  2,992  in China Merchants Bank on March 30, 2022 and sell it today you would earn a total of  256.00  from holding China Merchants Bank or generate 8.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

China Merchants Bank  vs.  US Bancorp

 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

US Bancorp 
US Bancorp Performance
0 of 100
Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat 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
0.0397
Payout Ratio
0.4
Last Split Factor
3:1
Forward Annual Dividend Rate
1.84
Dividend Date
2022-07-15
Ex Dividend Date
2022-06-29
Last Split Date
1999-04-16

US Bancorp Price Channel

China Merchants and US Bancorp Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with China Merchants and US Bancorp

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

China Merchants Bank

Pair trading matchups for China Merchants

The idea behind China Merchants Bank and US Bancorp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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