Correlation Between BYD Co and Xiandai Investment

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

Diversification Opportunities for BYD Co and Xiandai Investment

-0.43

Correlation Coefficient

BYD Co  Xiandai Investment

Very good diversification

The 3 months correlation between BYD and Xiandai is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Xiandai Investment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiandai Investment 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 Xiandai Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiandai Investment has no effect on the direction of BYD Co i.e., BYD Co and Xiandai Investment go up and down completely randomly.

Pair Corralation between BYD Co and Xiandai Investment

Assuming the 90 days trading horizon BYD Co Ltd is expected to under-perform the Xiandai Investment. But the stock apears to be less risky and, when comparing its historical volatility, BYD Co Ltd is 1.26 times less risky than Xiandai Investment. The stock trades about -0.07 of its potential returns per unit of risk. The Xiandai Investment Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  403.00  in Xiandai Investment Co on October 23, 2024 and sell it today you would earn a total of  20.00  from holding Xiandai Investment Co or generate 4.96% return on investment over 90 days.

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

BYD Co Ltd  vs.  Xiandai Investment 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.

Xiandai Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xiandai Investment Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiandai Investment 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 Xiandai Investment

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

The idea behind BYD Co Ltd and Xiandai Investment 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.