Correlation Between Dongfeng Automobile and Shenzhen Bingchuan

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

Diversification Opportunities for Dongfeng Automobile and Shenzhen Bingchuan

0.59

Correlation Coefficient

Dongfeng Automobile  Shenzhen Bingchuan

Very weak diversification

The 3 months correlation between Dongfeng and Shenzhen is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Shenzhen Bingchuan Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Bingchuan 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 Bingchuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Bingchuan has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Shenzhen Bingchuan go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Shenzhen Bingchuan

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Shenzhen Bingchuan. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.12 times less risky than Shenzhen Bingchuan. The stock trades about -0.02 of its potential returns per unit of risk. The Shenzhen Bingchuan Network is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,024  in Shenzhen Bingchuan Network on December 27, 2024 and sell it today you would earn a total of  372.00  from holding Shenzhen Bingchuan Network or generate 18.38% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Shenzhen Bingchuan Network

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.

Shenzhen Bingchuan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Bingchuan Network are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Bingchuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongfeng Automobile and Shenzhen Bingchuan

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

The idea behind Dongfeng Automobile Co and Shenzhen Bingchuan Network 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.