Kensho Stats

When Chinese markets tank, here's how to trade them

China volatility? Bet on Vegas stocks

When the Chinese market tanks, some big names on Wall Street get hit, too.

But according to data from Kensho, a financial tool to quantify market events, there's opportunity in the rebound.

U.S. companies with China exposure, from Apple to Wal-Mart to Yum Brands, typically trade lower when China's benchmark index, the Shanghai Composite, fall 10 percent or more over five trading days.

The following week after such a plunge, Chinese stocks rebound about half the time. But some American stocks are better bets.

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Wynn Resorts and Las Vegas Sands have huge footprints in Macau—China's version of Vegas. Wynn derived about 65 percent of total revenue from the Chinese peninsula in the first quarter of this year, and Las Vegas Sands about 60 percent.

An investor checking the share prices in a stock firm in Fuyang, east China's Anhui province.
STR | AFP | Getty Images

Since 2005, WYNN and LVS bounce back strongly the five trading days following a big fall in the Chinese market—both trading positive more than half the time and returning 3.5 and 4.7 percent on average respectively.

Another way to play a fall in China is to look at U.S. technology companies that rely on China for a bulk of their sales. According to FactSet, chipmaker Qualcomm sees nearly half its revenue come from China (48 percent) while smaller chipmaker Altera is also vulnerable, deriving 30 percent of revenue from China.

After the Shanghai Composite falls 10 percent or more in five days, both names outperform the . The following week, Qualcomm trades positive nearly 65 percent of the time, returning 1.5 percent on average. Altera trades positive about 60 percent of the time, also returning 1.5 percent on average.

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Other Wall Street names with China exposure such as Micron Technology, Texas Instruments and Starbucks are less reliable, trading negative half the time or more.

Historically, Yahoo should also be avoided. The company's fortunes are linked to China through its 15 percent stake in Chinese e-commerce giant Alibaba. During a dive in Shanghai, shares typically fall 3.9 percent on average. The following week, they continue to underperform, losing another 0.4 percent on average.

U.S. companies with increasing exposure to China will be hit by selloffs in markets there, but time it right and there may be opportunity to get in on a rebound.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.