Correlation Between Western Securities and Dongfeng Automobile

Can any of the company-specific risk be diversified away by investing in both Western Securities and Dongfeng Automobile 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 Western Securities and Dongfeng Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Securities Co and Dongfeng Automobile Co, you can compare the effects of market volatilities on Western Securities and Dongfeng Automobile 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 Western Securities with a short position of Dongfeng Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Securities and Dongfeng Automobile.

Diversification Opportunities for Western Securities and Dongfeng Automobile

0.85

Correlation Coefficient

Western Securities  Dongfeng Automobile

Very poor diversification

The 3 months correlation between Western and Dongfeng is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Western Securities Co and Dongfeng Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Automobile and Western Securities 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 Western Securities Co are associated (or correlated) with Dongfeng Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongfeng Automobile has no effect on the direction of Western Securities i.e., Western Securities and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between Western Securities and Dongfeng Automobile

Assuming the 90 days trading horizon Western Securities Co is expected to under-perform the Dongfeng Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Western Securities Co is 1.01 times less risky than Dongfeng Automobile. The stock trades about -0.04 of its potential returns per unit of risk. The Dongfeng Automobile Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  717.00  in Dongfeng Automobile Co on September 20, 2024 and sell it today you would earn a total of  84.00  from holding Dongfeng Automobile Co or generate 11.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Western Securities Co  vs.  Dongfeng Automobile Co

Western Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongfeng Automobile

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Western Securities and Dongfeng Automobile

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

The idea behind Western Securities Co and Dongfeng Automobile Co 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.