Correlation Between Dongfeng Automobile and Shenzhen Changfang

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

Diversification Opportunities for Dongfeng Automobile and Shenzhen Changfang

-0.24

Correlation Coefficient

Dongfeng Automobile  Shenzhen Changfang

Very good diversification

The 3 months correlation between Dongfeng and Shenzhen is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Shenzhen Changfang Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Changfang Light 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 Shenzhen Changfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Changfang Light has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Shenzhen Changfang go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Shenzhen Changfang

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Shenzhen Changfang. In addition to that, Dongfeng Automobile is 1.11 times more volatile than Shenzhen Changfang Light. It trades about -0.04 of its total potential returns per unit of risk. Shenzhen Changfang Light is currently generating about 0.14 per unit of volatility. If you would invest  165.00  in Shenzhen Changfang Light on December 26, 2024 and sell it today you would earn a total of  31.00  from holding Shenzhen Changfang Light or generate 18.79% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Shenzhen Changfang Light

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 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.

Shenzhen Changfang Light

Risk-Adjusted Performance

OK

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

Pair Trading with Dongfeng Automobile and Shenzhen Changfang

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

The idea behind Dongfeng Automobile Co and Shenzhen Changfang Light 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..