Correlation Between Dongfeng Automobile and Guangdong Qunxing

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

Diversification Opportunities for Dongfeng Automobile and Guangdong Qunxing

0.65

Correlation Coefficient

Dongfeng Automobile  Guangdong Qunxing

Poor diversification

The 3 months correlation between Dongfeng and Guangdong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Guangdong Qunxing Toys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Qunxing Toys 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 Guangdong Qunxing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Qunxing Toys has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Guangdong Qunxing go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Guangdong Qunxing

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to generate 0.78 times more return on investment than Guangdong Qunxing. However, Dongfeng Automobile Co is 1.27 times less risky than Guangdong Qunxing. It trades about -0.15 of its potential returns per unit of risk. Guangdong Qunxing Toys is currently generating about -0.16 per unit of risk. If you would invest  779.00  in Dongfeng Automobile Co on October 11, 2024 and sell it today you would lose (96.00) from holding Dongfeng Automobile Co or give up 12.32% of portfolio value over 90 days.

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

Dongfeng Automobile Co  vs.  Guangdong Qunxing Toys

Dongfeng Automobile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongfeng Automobile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Guangdong Qunxing Toys

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Qunxing Toys are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Qunxing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongfeng Automobile and Guangdong Qunxing

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

The idea behind Dongfeng Automobile Co and Guangdong Qunxing Toys 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.