Correlation Between BYD Co and Hainan Expressway

Can any of the company-specific risk be diversified away by investing in both BYD Co and Hainan Expressway 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 Hainan Expressway 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 Hainan Expressway Co, you can compare the effects of market volatilities on BYD Co and Hainan Expressway 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 Hainan Expressway. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Hainan Expressway.

Diversification Opportunities for BYD Co and Hainan Expressway

-0.32

Correlation Coefficient

BYD Co  Hainan Expressway

Very good diversification

The 3 months correlation between BYD and Hainan is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Hainan Expressway Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Expressway 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 Hainan Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Expressway has no effect on the direction of BYD Co i.e., BYD Co and Hainan Expressway go up and down completely randomly.

Pair Corralation between BYD Co and Hainan Expressway

Assuming the 90 days trading horizon BYD Co is expected to generate 2.37 times less return on investment than Hainan Expressway. But when comparing it to its historical volatility, BYD Co Ltd is 1.46 times less risky than Hainan Expressway. It trades about 0.02 of its potential returns per unit of risk. Hainan Expressway Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  497.00  in Hainan Expressway Co on October 22, 2024 and sell it today you would earn a total of  122.00  from holding Hainan Expressway Co or generate 24.55% return on investment over 90 days.

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

BYD Co Ltd  vs.  Hainan Expressway Co

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.

Hainan Expressway

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Expressway Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Expressway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BYD Co and Hainan Expressway

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

The idea behind BYD Co Ltd and Hainan Expressway Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.