Correlation Between Shenzhen Silver and Dongfeng Automobile

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

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

Diversification Opportunities for Shenzhen Silver and Dongfeng Automobile

-0.09

Correlation Coefficient

Shenzhen Silver  Dongfeng Automobile

Good diversification

The 3 months correlation between Shenzhen and Dongfeng is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Silver Basis and Dongfeng Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Automobile and Shenzhen Silver 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 Shenzhen Silver Basis 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 Shenzhen Silver i.e., Shenzhen Silver and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between Shenzhen Silver and Dongfeng Automobile

Assuming the 90 days trading horizon Shenzhen Silver Basis is expected to under-perform the Dongfeng Automobile. In addition to that, Shenzhen Silver is 1.09 times more volatile than Dongfeng Automobile Co. It trades about -0.09 of its total potential returns per unit of risk. Dongfeng Automobile Co is currently generating about 0.0 per unit of volatility. If you would invest  722.00  in Dongfeng Automobile Co on October 8, 2024 and sell it today you would lose (32.00) from holding Dongfeng Automobile Co or give up 4.43% of portfolio value over 90 days.

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

Shenzhen Silver Basis  vs.  Dongfeng Automobile Co

Shenzhen Silver Basis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Silver Basis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dongfeng Automobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongfeng Automobile Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongfeng Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shenzhen Silver and Dongfeng Automobile

The main advantage of trading using opposite Shenzhen Silver and Dongfeng Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenzhen Silver 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 Shenzhen Silver Basis 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.