Correlation Between China Merchants and Hyatt Hotels

Can any of the company-specific risk be diversified away by investing in both China Merchants and Hyatt Hotels 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 Hyatt Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Merchants Port and Hyatt Hotels, you can compare the effects of market volatilities on China Merchants and Hyatt Hotels 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 Hyatt Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Hyatt Hotels.

Diversification Opportunities for China Merchants and Hyatt Hotels

0.78

Correlation Coefficient

China Merchants  Hyatt Hotels

Poor diversification

The 3 months correlation between China and Hyatt is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Port and Hyatt Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyatt Hotels 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 Port are associated (or correlated) with Hyatt Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyatt Hotels has no effect on the direction of China Merchants i.e., China Merchants and Hyatt Hotels go up and down completely randomly.

Pair Corralation between China Merchants and Hyatt Hotels

Assuming the 90 days horizon China Merchants is expected to generate 1.3 times less return on investment than Hyatt Hotels. In addition to that, China Merchants is 1.15 times more volatile than Hyatt Hotels. It trades about 0.16 of its total potential returns per unit of risk. Hyatt Hotels is currently generating about 0.24 per unit of volatility. If you would invest  9,673  in Hyatt Hotels on April 24, 2025 and sell it today you would earn a total of  3,002  from holding Hyatt Hotels or generate 31.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

China Merchants Port  vs.  Hyatt Hotels

China Merchants Port

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Hyatt Hotels

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hyatt Hotels are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hyatt Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Hyatt Hotels

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

The idea behind China Merchants Port and Hyatt Hotels 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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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.