Correlation Between Dongfeng Automobile and Beijing Compass

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

Diversification Opportunities for Dongfeng Automobile and Beijing Compass

0.63

Correlation Coefficient

Dongfeng Automobile  Beijing Compass

Poor diversification

The 3 months correlation between Dongfeng and Beijing is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Beijing Compass Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Compass Tech 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 Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Compass Tech has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Beijing Compass go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Beijing Compass

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to generate 0.85 times more return on investment than Beijing Compass. However, Dongfeng Automobile Co is 1.18 times less risky than Beijing Compass. It trades about -0.03 of its potential returns per unit of risk. Beijing Compass Technology is currently generating about -0.08 per unit of risk. If you would invest  783.00  in Dongfeng Automobile Co on December 26, 2024 and sell it today you would lose (49.00) from holding Dongfeng Automobile Co or give up 6.26% of portfolio value over 90 days.

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

Dongfeng Automobile Co  vs.  Beijing Compass Technology

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.

Beijing Compass Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beijing Compass Technology 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dongfeng Automobile and Beijing Compass

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

The idea behind Dongfeng Automobile Co and Beijing Compass Technology 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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.