Correlation Between Dongfeng Automobile and Changchun Engley

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

Diversification Opportunities for Dongfeng Automobile and Changchun Engley

0.71

Correlation Coefficient

Dongfeng Automobile  Changchun Engley

Poor diversification

The 3 months correlation between Dongfeng and Changchun is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Changchun Engley Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Engley Aut 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 Changchun Engley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Engley Aut has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Changchun Engley go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Changchun Engley

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Changchun Engley. In addition to that, Dongfeng Automobile is 1.35 times more volatile than Changchun Engley Automobile. It trades about -0.03 of its total potential returns per unit of risk. Changchun Engley Automobile is currently generating about -0.03 per unit of volatility. If you would invest  398.00  in Changchun Engley Automobile on December 28, 2024 and sell it today you would lose (19.00) from holding Changchun Engley Automobile or give up 4.77% 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.  Changchun Engley Automobile

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.

Changchun Engley Aut

Risk-Adjusted Performance

Very Weak

Over the last 90 days Changchun Engley Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Changchun Engley is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dongfeng Automobile and Changchun Engley

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

The idea behind Dongfeng Automobile Co and Changchun Engley Automobile 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.