Correlation Between Dongfeng Automobile and Shenyang Blue

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

Diversification Opportunities for Dongfeng Automobile and Shenyang Blue

0.5

Correlation Coefficient

Dongfeng Automobile  Shenyang Blue

Very weak diversification

The 3 months correlation between Dongfeng and Shenyang is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Shenyang Blue Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenyang Blue Silver 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 Shenyang Blue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenyang Blue Silver has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Shenyang Blue go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Shenyang Blue

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to generate 0.83 times more return on investment than Shenyang Blue. However, Dongfeng Automobile Co is 1.2 times less risky than Shenyang Blue. It trades about -0.02 of its potential returns per unit of risk. Shenyang Blue Silver is currently generating about -0.02 per unit of risk. If you would invest  773.00  in Dongfeng Automobile Co on December 27, 2024 and sell it today you would lose (39.00) from holding Dongfeng Automobile Co or give up 5.05% 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.  Shenyang Blue Silver

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.

Shenyang Blue Silver

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Dongfeng Automobile Co and Shenyang Blue Silver 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.