Correlation Between CIMC Vehicles and Dongfeng Automobile

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

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

Diversification Opportunities for CIMC Vehicles and Dongfeng Automobile

0.47

Correlation Coefficient

CIMC Vehicles  Dongfeng Automobile

Very weak diversification

The 3 months correlation between CIMC and Dongfeng is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding CIMC Vehicles 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 CIMC Vehicles 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 CIMC Vehicles 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 CIMC Vehicles i.e., CIMC Vehicles and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between CIMC Vehicles and Dongfeng Automobile

Assuming the 90 days trading horizon CIMC Vehicles Co is expected to under-perform the Dongfeng Automobile. But the stock apears to be less risky and, when comparing its historical volatility, CIMC Vehicles Co is 1.65 times less risky than Dongfeng Automobile. The stock trades about -0.08 of its potential returns per unit of risk. The Dongfeng Automobile Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  736.00  in Dongfeng Automobile Co on September 26, 2024 and sell it today you would lose (7.00) from holding Dongfeng Automobile Co or give up 0.95% of portfolio value over 90 days.

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

CIMC Vehicles Co  vs.  Dongfeng Automobile Co

CIMC Vehicles

Risk-Adjusted Performance

2 of 100

Weak

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

Dongfeng Automobile

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 7 (%) 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 CIMC Vehicles and Dongfeng Automobile

The main advantage of trading using opposite CIMC Vehicles and Dongfeng Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CIMC Vehicles 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 CIMC Vehicles 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..