Correlation Between Dongfeng Automobile and Guangzhou Dongfang

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

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

Diversification Opportunities for Dongfeng Automobile and Guangzhou Dongfang

0.64

Correlation Coefficient

Dongfeng Automobile  Guangzhou Dongfang

Poor diversification

The 3 months correlation between Dongfeng and Guangzhou is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Guangzhou Dongfang Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Dongfang Hotel and Dongfeng Automobile 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 Dongfeng Automobile Co are associated (or correlated) with Guangzhou Dongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Dongfang Hotel has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Guangzhou Dongfang

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Guangzhou Dongfang. In addition to that, Dongfeng Automobile is 1.56 times more volatile than Guangzhou Dongfang Hotel. It trades about -0.04 of its total potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.05 per unit of volatility. If you would invest  994.00  in Guangzhou Dongfang Hotel on December 26, 2024 and sell it today you would earn a total of  38.00  from holding Guangzhou Dongfang Hotel or generate 3.82% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Guangzhou Dongfang Hotel

Dongfeng Automobile

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Dongfang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dongfeng Automobile and Guangzhou Dongfang

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

The idea behind Dongfeng Automobile Co and Guangzhou Dongfang Hotel 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.