Correlation Between Dongfeng Automobile and Shenzhen Noposion

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

Diversification Opportunities for Dongfeng Automobile and Shenzhen Noposion

0.88

Correlation Coefficient

Dongfeng Automobile  Shenzhen Noposion

Very poor diversification

The 3 months correlation between Dongfeng and Shenzhen is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Shenzhen Noposion Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Noposion 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 Shenzhen Noposion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Noposion has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Shenzhen Noposion go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Shenzhen Noposion

Assuming the 90 days trading horizon Dongfeng Automobile is expected to generate 5.35 times less return on investment than Shenzhen Noposion. But when comparing it to its historical volatility, Dongfeng Automobile Co is 1.33 times less risky than Shenzhen Noposion. It trades about 0.09 of its potential returns per unit of risk. Shenzhen Noposion Agrochemicals is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  952.00  in Shenzhen Noposion Agrochemicals on September 24, 2024 and sell it today you would earn a total of  219.00  from holding Shenzhen Noposion Agrochemicals or generate 23.0% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Shenzhen Noposion Agrochemical

Dongfeng Automobile

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 9 (%) 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.

Shenzhen Noposion

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Noposion Agrochemicals are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Noposion sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongfeng Automobile and Shenzhen Noposion

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

The idea behind Dongfeng Automobile Co and Shenzhen Noposion Agrochemicals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.