Correlation Between Shore Bancshares and China Merchants

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

Diversification Opportunities for Shore Bancshares and China Merchants

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Shore and China is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Shore Bancshares 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 Shore Bancshares 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 Shore Bancshares 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 Shore Bancshares i.e., Shore Bancshares and China Merchants go up and down completely randomly.

Pair Corralation between Shore Bancshares and China Merchants

Given the investment horizon of 90 days Shore Bancshares is expected to generate 2.04 times less return on investment than China Merchants. But when comparing it to its historical volatility, Shore Bancshares is 3.67 times less risky than China Merchants. It trades about 0.07 of its potential returns per unit of risk. China Merchants Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  550.00  in China Merchants Bank on March 28, 2022 and sell it today you would earn a total of  29.00  from holding China Merchants Bank or generate 5.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.8%
ValuesDaily Returns

Shore Bancshares  vs.  China Merchants Bank

 Performance (%) 
      Timeline 
Shore Bancshares 
Shore Performance
0 of 100
Over the last 90 days Shore Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0246
Payout Ratio
0.31
Last Split Factor
3:2
Forward Annual Dividend Rate
0.48
Dividend Date
2022-05-31
Ex Dividend Date
2022-05-12
Last Split Date
2006-06-06

Shore 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 weak performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in July 2022. The latest tumult may also be a sign of longer-term up-swing 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

Shore Bancshares and China Merchants Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Shore Bancshares and China Merchants

The main advantage of trading using opposite Shore Bancshares and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shore Bancshares 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.

Shore Bancshares

Pair trading matchups for Shore Bancshares

Northrop Grumman vs. Shore Bancshares
Cincinnati Financial vs. Shore Bancshares
Verizon Communications vs. Shore Bancshares
Merck vs. Shore Bancshares
Home Depot vs. Shore Bancshares
Conagra Brands vs. Shore Bancshares
Teucrium Corn vs. Shore Bancshares
Macroaxis vs. Shore Bancshares
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 Shore Bancshares 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. Shore Bancshares' 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, Shore Bancshares' 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 Shore Bancshares.
The idea behind Shore Bancshares 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

Home Depot vs. China Merchants
Cincinnati Financial vs. China Merchants
Chevron Corp vs. China Merchants
Verizon Communications vs. China Merchants
Micron Technology vs. China Merchants
Merck vs. China Merchants
Conagra Brands vs. China Merchants
Northrop Grumman 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.
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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