Correlation Between Five Star and China Merchants
Can any of the company-specific risk be diversified away by investing in both Five Star 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 Five Star and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Five Star Bancorp and China Merchants Bank, you can compare the effects of market volatilities on Five Star 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 Five Star with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Star and China Merchants.
Diversification Opportunities for Five Star and China Merchants
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Five and China is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Five Star 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 Five Star 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 Five Star 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 Five Star i.e., Five Star and China Merchants go up and down completely randomly.
Pair Corralation between Five Star and China Merchants
Given the investment horizon of 90 days Five Star Bancorp is expected to generate 0.87 times more return on investment than China Merchants. However, Five Star Bancorp is 1.15 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 -0.02 per unit of risk. If you would invest 2,027 in Five Star Bancorp on January 26, 2024 and sell it today you would earn a total of 168.00 from holding Five Star Bancorp or generate 8.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Star Bancorp vs. China Merchants Bank
Performance |
| Timeline |
| Five Star Bancorp |
| China Merchants Bank |
Five Star and China Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Star and China Merchants
The main advantage of trading using opposite Five Star and China Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Star 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.| Five Star vs. Community West Bancshares | Five Star vs. HMN Financial | Five Star vs. First Northwest Bancorp | Five Star vs. Cullman Bancorp |
| China Merchants vs. Lloyds Banking Group | China Merchants vs. Western Alliance Bancorporation | China Merchants vs. JAPAN POST BANK | China Merchants vs. Piraeus Bank SA |
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 the Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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