Correlation Between Panda Dairy Corp and Dongfeng Automobile

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

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

Diversification Opportunities for Panda Dairy Corp and Dongfeng Automobile

0.5

Correlation Coefficient

Panda Dairy Corp  Dongfeng Automobile

Very weak diversification

The 3 months correlation between Panda and Dongfeng is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Panda Dairy Corp and Dongfeng Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Automobile and Panda Dairy Corp 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 Panda Dairy Corp 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 Panda Dairy Corp i.e., Panda Dairy Corp and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between Panda Dairy Corp and Dongfeng Automobile

Assuming the 90 days trading horizon Panda Dairy Corp is expected to generate 1.57 times more return on investment than Dongfeng Automobile. However, Panda Dairy Corp is 1.57 times more volatile than Dongfeng Automobile Co. It trades about 0.08 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  2,675  in Panda Dairy Corp on December 25, 2024 and sell it today you would earn a total of  471.00  from holding Panda Dairy Corp or generate 17.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Panda Dairy Corp  vs.  Dongfeng Automobile Co

Panda Dairy Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Panda Dairy Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Panda Dairy Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongfeng Automobile

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Panda Dairy Corp and Dongfeng Automobile

The main advantage of trading using opposite Panda Dairy Corp and Dongfeng Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Panda Dairy Corp 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 Panda Dairy Corp 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.