Correlation Between Dongfeng Automobile and Chengdu Xuguang

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

Diversification Opportunities for Dongfeng Automobile and Chengdu Xuguang

0.55

Correlation Coefficient

Dongfeng Automobile  Chengdu Xuguang

Very weak diversification

The 3 months correlation between Dongfeng and Chengdu is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Chengdu Xuguang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xuguang Elec 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 Chengdu Xuguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xuguang Elec has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Chengdu Xuguang go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Chengdu Xuguang

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Chengdu Xuguang. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.03 times less risky than Chengdu Xuguang. The stock trades about -0.03 of its potential returns per unit of risk. The Chengdu Xuguang Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  773.00  in Chengdu Xuguang Electronics on December 26, 2024 and sell it today you would earn a total of  49.00  from holding Chengdu Xuguang Electronics or generate 6.34% 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.  Chengdu Xuguang Electronics

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.

Chengdu Xuguang Elec

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xuguang Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xuguang may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Dongfeng Automobile and Chengdu Xuguang

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

The idea behind Dongfeng Automobile Co and Chengdu Xuguang Electronics 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 Commodity Directory module to find actively traded commodities issued by global exchanges.