Correlation Between BYD Co and XCMG Construction

Can any of the company-specific risk be diversified away by investing in both BYD Co and XCMG Construction 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 BYD Co and XCMG Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BYD Co Ltd and XCMG Construction Machinery, you can compare the effects of market volatilities on BYD Co and XCMG Construction 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 BYD Co with a short position of XCMG Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and XCMG Construction.

Diversification Opportunities for BYD Co and XCMG Construction

0.31

Correlation Coefficient

BYD Co  XCMG Construction

Weak diversification

The 3 months correlation between BYD and XCMG is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and XCMG Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XCMG Construction and BYD Co 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 BYD Co Ltd are associated (or correlated) with XCMG Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XCMG Construction has no effect on the direction of BYD Co i.e., BYD Co and XCMG Construction go up and down completely randomly.

Pair Corralation between BYD Co and XCMG Construction

Assuming the 90 days trading horizon BYD Co Ltd is expected to under-perform the XCMG Construction. In addition to that, BYD Co is 1.03 times more volatile than XCMG Construction Machinery. It trades about -0.1 of its total potential returns per unit of risk. XCMG Construction Machinery is currently generating about -0.01 per unit of volatility. If you would invest  771.00  in XCMG Construction Machinery on October 25, 2024 and sell it today you would lose (4.00) from holding XCMG Construction Machinery or give up 0.52% of portfolio value over 90 days.

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

BYD Co Ltd  vs.  XCMG Construction Machinery

BYD Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BYD Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

XCMG Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XCMG Construction Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, XCMG Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BYD Co and XCMG Construction

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

The idea behind BYD Co Ltd and XCMG Construction Machinery 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.