Correlation Between BYD Co and Shanghai Pudong

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

Diversification Opportunities for BYD Co and Shanghai Pudong

0.86

Correlation Coefficient

BYD Co  Shanghai Pudong

Very poor diversification

The 3 months correlation between BYD and Shanghai is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Shanghai Pudong Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pudong Deve 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 Shanghai Pudong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pudong Deve has no effect on the direction of BYD Co i.e., BYD Co and Shanghai Pudong go up and down completely randomly.

Pair Corralation between BYD Co and Shanghai Pudong

Assuming the 90 days trading horizon BYD Co is expected to generate 1.99 times less return on investment than Shanghai Pudong. In addition to that, BYD Co is 1.69 times more volatile than Shanghai Pudong Development. It trades about 0.02 of its total potential returns per unit of risk. Shanghai Pudong Development is currently generating about 0.06 per unit of volatility. If you would invest  692.00  in Shanghai Pudong Development on September 23, 2024 and sell it today you would earn a total of  266.00  from holding Shanghai Pudong Development or generate 38.44% return on investment over 90 days.

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

BYD Co Ltd  vs.  Shanghai Pudong Development

BYD Co

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 6 (%) 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.

Shanghai Pudong Deve

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pudong Development are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Pudong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BYD Co and Shanghai Pudong

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

The idea behind BYD Co Ltd and Shanghai Pudong Development 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.