Correlation Between BYD Co and Beijing Roborock

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

Diversification Opportunities for BYD Co and Beijing Roborock

0.75

Correlation Coefficient

BYD Co  Beijing Roborock

Poor diversification

The 3 months correlation between BYD and Beijing is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Beijing Roborock Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Roborock Tec 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 Beijing Roborock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Roborock Tec has no effect on the direction of BYD Co i.e., BYD Co and Beijing Roborock go up and down completely randomly.

Pair Corralation between BYD Co and Beijing Roborock

Assuming the 90 days trading horizon BYD Co Ltd is expected to generate 0.93 times more return on investment than Beijing Roborock. However, BYD Co Ltd is 1.08 times less risky than Beijing Roborock. It trades about 0.24 of its potential returns per unit of risk. Beijing Roborock Technology is currently generating about 0.17 per unit of risk. If you would invest  27,458  in BYD Co Ltd on November 28, 2024 and sell it today you would earn a total of  9,752  from holding BYD Co Ltd or generate 35.52% return on investment over 90 days.

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

BYD Co Ltd  vs.  Beijing Roborock Technology

BYD Co

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 18 (%) 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.

Beijing Roborock Tec

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Roborock Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Roborock sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BYD Co and Beijing Roborock

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

The idea behind BYD Co Ltd and Beijing Roborock Technology 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.