Correlation Between Dongfeng Automobile and Guangdong Failong

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

Diversification Opportunities for Dongfeng Automobile and Guangdong Failong

0.3

Correlation Coefficient

Dongfeng Automobile  Guangdong Failong

Weak diversification

The 3 months correlation between Dongfeng and Guangdong is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Guangdong Failong Crystal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Failong Crystal 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 Failong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Failong Crystal has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Guangdong Failong go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Guangdong Failong

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to generate 0.98 times more return on investment than Guangdong Failong. However, Dongfeng Automobile Co is 1.02 times less risky than Guangdong Failong. It trades about 0.05 of its potential returns per unit of risk. Guangdong Failong Crystal is currently generating about -0.09 per unit of risk. If you would invest  663.00  in Dongfeng Automobile Co on October 25, 2024 and sell it today you would earn a total of  58.00  from holding Dongfeng Automobile Co or generate 8.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Dongfeng Automobile Co  vs.  Guangdong Failong Crystal

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.

Guangdong Failong Crystal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Failong Crystal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dongfeng Automobile and Guangdong Failong

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

The idea behind Dongfeng Automobile Co and Guangdong Failong Crystal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.