Correlation Between JP Morgan and China Merchants

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

Diversification Opportunities for JP Morgan and China Merchants

-0.45
  Correlation Coefficient

Very good diversification

The 3 months correlation between JP Morgan and China is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding JP Morgan Chase 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 JP Morgan 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 JP Morgan Chase 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 JP Morgan i.e., JP Morgan and China Merchants go up and down completely randomly.

Pair Corralation between JP Morgan and China Merchants

Considering the 90-day investment horizon JP Morgan Chase is expected to generate 0.63 times more return on investment than China Merchants. However, JP Morgan Chase is 1.59 times less risky than China Merchants. It trades about 0.03 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.0 per unit of risk. If you would invest  11,447  in JP Morgan Chase on August 31, 2022 and sell it today you would earn a total of  2,116  from holding JP Morgan Chase or generate 18.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

JP Morgan Chase  vs.  China Merchants Bank

 Performance (%) 
       Timeline  
JP Morgan Chase 
JP Morgan Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in JP Morgan Chase are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, JP Morgan revealed solid returns over the last few months and may actually be approaching a breakup point.

JP Morgan 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 fairly strong forward-looking signals, China Merchants is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

China Price Channel

JP Morgan and China Merchants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with JP Morgan and China Merchants

The main advantage of trading using opposite JP Morgan and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JP Morgan 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.
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The idea behind JP Morgan Chase 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.
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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