Correlation Between Fifth Third and China Merchants

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Can any of the company-specific risk be diversified away by investing in both Fifth Third and China Merchants 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 Fifth Third and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fifth Third Bancorp and China Merchants Bank, you can compare the effects of market volatilities on Fifth Third and China Merchants 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 Fifth Third with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and China Merchants.

Diversification Opportunities for Fifth Third and China Merchants

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Fifth and China is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and China Merchants Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Bank and Fifth Third 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 Fifth Third Bancorp are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Bank has no effect on the direction of Fifth Third i.e., Fifth Third and China Merchants go up and down completely randomly.

Pair Corralation between Fifth Third and China Merchants

Assuming the 90 days horizon Fifth Third Bancorp is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Fifth Third Bancorp is 3.29 times less risky than China Merchants. The stock trades about -0.11 of its potential returns per unit of risk. The China Merchants Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  630.00  in China Merchants Bank on March 31, 2022 and sell it today you would earn a total of  35.00  from holding China Merchants Bank or generate 5.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Fifth Third Bancorp  vs.  China Merchants Bank

 Performance (%) 
      Timeline 
Fifth Third Bancorp 
Fifth Performance
0 of 100
Over the last 90 days Fifth Third Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Fifth Third is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0611
Payout Ratio
0.0155
Forward Annual Dividend Rate
1.5
Dividend Date
2022-03-31
Ex Dividend Date
2022-06-27

Fifth Price Channel

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 latest weak performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0414
Payout Ratio
0.11
Last Split Factor
1098:1073
Forward Annual Dividend Rate
0.24
Dividend Date
2017-07-14
Ex Dividend Date
2022-07-07
Last Split Date
2013-08-29

China Price Channel

Fifth Third and China Merchants Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Fifth Third and China Merchants

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

Fifth Third Bancorp

Pair trading matchups for Fifth Third

The idea behind Fifth Third Bancorp and China Merchants Bank 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.

China Merchants Bank

Pair trading matchups for China Merchants

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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