Correlation Between BYD Co and Chongqing VDL

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

Diversification Opportunities for BYD Co and Chongqing VDL

0.31

Correlation Coefficient

BYD Co  Chongqing VDL

Weak diversification

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

Pair Corralation between BYD Co and Chongqing VDL

Assuming the 90 days trading horizon BYD Co is expected to generate 18.73 times less return on investment than Chongqing VDL. But when comparing it to its historical volatility, BYD Co Ltd is 1.99 times less risky than Chongqing VDL. It trades about 0.02 of its potential returns per unit of risk. Chongqing VDL Electronics is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,607  in Chongqing VDL Electronics on September 27, 2024 and sell it today you would earn a total of  1,727  from holding Chongqing VDL Electronics or generate 47.88% return on investment over 90 days.

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

BYD Co Ltd  vs.  Chongqing VDL Electronics

BYD Co

Risk-Adjusted Performance

1 of 100

Insignificant

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

Chongqing VDL Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing VDL Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing VDL sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BYD Co and Chongqing VDL

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

The idea behind BYD Co Ltd and Chongqing VDL Electronics 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.