Correlation Between Dongfeng Automobile and Beijing Ultrapower

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

Diversification Opportunities for Dongfeng Automobile and Beijing Ultrapower

0.21

Correlation Coefficient

Dongfeng Automobile  Beijing Ultrapower

Modest diversification

The 3 months correlation between Dongfeng and Beijing is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Beijing Ultrapower Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Ultrapower 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 Beijing Ultrapower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Ultrapower has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Beijing Ultrapower go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Beijing Ultrapower

Assuming the 90 days trading horizon Dongfeng Automobile is expected to generate 3.62 times less return on investment than Beijing Ultrapower. But when comparing it to its historical volatility, Dongfeng Automobile Co is 1.45 times less risky than Beijing Ultrapower. It trades about 0.02 of its potential returns per unit of risk. Beijing Ultrapower Software is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  532.00  in Beijing Ultrapower Software on October 25, 2024 and sell it today you would earn a total of  695.00  from holding Beijing Ultrapower Software or generate 130.64% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Beijing Ultrapower Software

Dongfeng Automobile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 4 (%) 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.

Beijing Ultrapower

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing Ultrapower Software 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.

Pair Trading with Dongfeng Automobile and Beijing Ultrapower

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

The idea behind Dongfeng Automobile Co and Beijing Ultrapower Software 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.