Correlation Between Dongfeng Automobile and Xinhua Winshare

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

Diversification Opportunities for Dongfeng Automobile and Xinhua Winshare

0.23

Correlation Coefficient

Dongfeng Automobile  Xinhua Winshare

Modest diversification

The 3 months correlation between Dongfeng and Xinhua is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Xinhua Winshare Publishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinhua Winshare Publ 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 Xinhua Winshare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinhua Winshare Publ has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Xinhua Winshare go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Xinhua Winshare

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to generate 1.79 times more return on investment than Xinhua Winshare. However, Dongfeng Automobile is 1.79 times more volatile than Xinhua Winshare Publishing. It trades about -0.04 of its potential returns per unit of risk. Xinhua Winshare Publishing is currently generating about -0.11 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 (64.00) from holding Dongfeng Automobile Co or give up 8.17% of portfolio value over 90 days.

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

Dongfeng Automobile Co  vs.  Xinhua Winshare Publishing

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Xinhua Winshare Publ

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xinhua Winshare Publishing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Dongfeng Automobile and Xinhua Winshare

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

The idea behind Dongfeng Automobile Co and Xinhua Winshare Publishing 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.