Correlation Between BYD Co and Shanghai

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

Diversification Opportunities for BYD Co and Shanghai

0.81

Correlation Coefficient

BYD Co  Shanghai

Very poor diversification

The 3 months correlation between BYD and Shanghai is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Shanghai SK Automation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai SK Automation 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai SK Automation has no effect on the direction of BYD Co i.e., BYD Co and Shanghai go up and down completely randomly.

Pair Corralation between BYD Co and Shanghai

Assuming the 90 days trading horizon BYD Co Ltd is expected to generate 0.87 times more return on investment than Shanghai. However, BYD Co Ltd is 1.15 times less risky than Shanghai. It trades about 0.18 of its potential returns per unit of risk. Shanghai SK Automation is currently generating about 0.09 per unit of risk. If you would invest  28,592  in BYD Co Ltd on December 25, 2024 and sell it today you would earn a total of  8,367  from holding BYD Co Ltd or generate 29.26% 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 SK Automation

BYD Co

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 13 (%) 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 SK Automation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai SK Automation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BYD Co and Shanghai

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

The idea behind BYD Co Ltd and Shanghai SK Automation 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.