Correlation Between Beijing Compass and Dongfeng Automobile

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

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

Diversification Opportunities for Beijing Compass and Dongfeng Automobile

0.3

Correlation Coefficient

Beijing Compass  Dongfeng Automobile

Weak diversification

The 3 months correlation between Beijing and Dongfeng is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Compass Technology and Dongfeng Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Automobile and Beijing Compass 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 Beijing Compass Technology 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 Beijing Compass i.e., Beijing Compass and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between Beijing Compass and Dongfeng Automobile

Assuming the 90 days trading horizon Beijing Compass Technology is expected to generate 1.44 times more return on investment than Dongfeng Automobile. However, Beijing Compass is 1.44 times more volatile than Dongfeng Automobile Co. It trades about 0.04 of its potential returns per unit of risk. Dongfeng Automobile Co is currently generating about 0.02 per unit of risk. If you would invest  6,032  in Beijing Compass Technology on October 23, 2024 and sell it today you would earn a total of  3,201  from holding Beijing Compass Technology or generate 53.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Beijing Compass Technology  vs.  Dongfeng Automobile Co

Beijing Compass Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongfeng Automobile

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongfeng Automobile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Beijing Compass and Dongfeng Automobile

The main advantage of trading using opposite Beijing Compass and Dongfeng Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing Compass 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 Beijing Compass Technology 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.