Correlation Between BYD Co and Shenzhen Mindray

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

Diversification Opportunities for BYD Co and Shenzhen Mindray

0.9

Correlation Coefficient

BYD Co  Shenzhen Mindray

Almost no diversification

The 3 months correlation between BYD and Shenzhen is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Shenzhen Mindray Bio Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Mindray Bio 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 Shenzhen Mindray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Mindray Bio has no effect on the direction of BYD Co i.e., BYD Co and Shenzhen Mindray go up and down completely randomly.

Pair Corralation between BYD Co and Shenzhen Mindray

Assuming the 90 days trading horizon BYD Co Ltd is expected to under-perform the Shenzhen Mindray. But the stock apears to be less risky and, when comparing its historical volatility, BYD Co Ltd is 1.02 times less risky than Shenzhen Mindray. The stock trades about -0.24 of its potential returns per unit of risk. The Shenzhen Mindray Bio Medical is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  26,961  in Shenzhen Mindray Bio Medical on August 30, 2024 and sell it today you would lose (960.00) from holding Shenzhen Mindray Bio Medical or give up 3.56% of portfolio value over 90 days.

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

BYD Co Ltd  vs.  Shenzhen Mindray Bio Medical

BYD Co

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BYD Co sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Mindray Bio

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Mindray Bio Medical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Mindray sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BYD Co and Shenzhen Mindray

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

The idea behind BYD Co Ltd and Shenzhen Mindray Bio Medical 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.