Correlation Between Dongfeng Automobile and Xiangyang Automobile

Can any of the company-specific risk be diversified away by investing in both Dongfeng Automobile and Xiangyang 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 Dongfeng Automobile and Xiangyang Automobile 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 Xiangyang Automobile Bearing, you can compare the effects of market volatilities on Dongfeng Automobile and Xiangyang 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 Dongfeng Automobile with a short position of Xiangyang Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongfeng Automobile and Xiangyang Automobile.

Diversification Opportunities for Dongfeng Automobile and Xiangyang Automobile

0.14

Correlation Coefficient

Dongfeng Automobile  Xiangyang Automobile

Average diversification

The 3 months correlation between Dongfeng and Xiangyang is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Xiangyang Automobile Bearing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiangyang Automobile 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 Xiangyang Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiangyang Automobile has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Xiangyang Automobile go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Xiangyang Automobile

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Xiangyang Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 2.17 times less risky than Xiangyang Automobile. The stock trades about -0.04 of its potential returns per unit of risk. The Xiangyang Automobile Bearing is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  675.00  in Xiangyang Automobile Bearing on December 26, 2024 and sell it today you would earn a total of  705.00  from holding Xiangyang Automobile Bearing or generate 104.44% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Xiangyang Automobile Bearing

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.

Xiangyang Automobile

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiangyang Automobile Bearing are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiangyang Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongfeng Automobile and Xiangyang Automobile

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

The idea behind Dongfeng Automobile Co and Xiangyang Automobile Bearing 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.