Correlation Between Dongfeng Automobile and Xinjiang Beixin

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

Diversification Opportunities for Dongfeng Automobile and Xinjiang Beixin

0.48

Correlation Coefficient

Dongfeng Automobile  Xinjiang Beixin

Very weak diversification

The 3 months correlation between Dongfeng and Xinjiang is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Xinjiang Beixin RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Beixin Road 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 Xinjiang Beixin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Beixin Road has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Xinjiang Beixin go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Xinjiang Beixin

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Xinjiang Beixin. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.24 times less risky than Xinjiang Beixin. The stock trades about -0.02 of its potential returns per unit of risk. The Xinjiang Beixin RoadBridge is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  402.00  in Xinjiang Beixin RoadBridge on December 27, 2024 and sell it today you would lose (10.00) from holding Xinjiang Beixin RoadBridge or give up 2.49% of portfolio value over 90 days.

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

Dongfeng Automobile Co  vs.  Xinjiang Beixin RoadBridge

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 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.

Xinjiang Beixin Road

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xinjiang Beixin RoadBridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xinjiang Beixin 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 Xinjiang Beixin

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

The idea behind Dongfeng Automobile Co and Xinjiang Beixin RoadBridge 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.