Correlation Between Dongfeng Automobile and Mingchen Health

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

Diversification Opportunities for Dongfeng Automobile and Mingchen Health

0.82

Correlation Coefficient

Dongfeng Automobile  Mingchen Health

Very poor diversification

The 3 months correlation between Dongfeng and Mingchen is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Mingchen Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mingchen Health 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 Mingchen Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mingchen Health has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Mingchen Health go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Mingchen Health

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Mingchen Health. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.21 times less risky than Mingchen Health. The stock trades about -0.1 of its potential returns per unit of risk. The Mingchen Health Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,529  in Mingchen Health Co on October 6, 2024 and sell it today you would lose (17.00) from holding Mingchen Health Co or give up 1.11% of portfolio value over 90 days.

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

Dongfeng Automobile Co  vs.  Mingchen Health Co

Dongfeng Automobile

Risk-Adjusted Performance

0 of 100

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.

Mingchen Health

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Dongfeng Automobile Co and Mingchen Health Co 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.

Check out your portfolio center.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.