Correlation Between Dongfeng Automobile and Tianjin Silvery

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

Diversification Opportunities for Dongfeng Automobile and Tianjin Silvery

0.69

Correlation Coefficient

Dongfeng Automobile  Tianjin Silvery

Poor diversification

The 3 months correlation between Dongfeng and Tianjin is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Tianjin Silvery Dragon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Silvery Dragon 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 Tianjin Silvery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Silvery Dragon has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Tianjin Silvery go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Tianjin Silvery

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Tianjin Silvery. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.08 times less risky than Tianjin Silvery. The stock trades about -0.13 of its potential returns per unit of risk. The Tianjin Silvery Dragon is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  611.00  in Tianjin Silvery Dragon on October 10, 2024 and sell it today you would earn a total of  53.00  from holding Tianjin Silvery Dragon or generate 8.67% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Tianjin Silvery Dragon

Dongfeng Automobile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongfeng Automobile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tianjin Silvery Dragon

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Silvery Dragon are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Silvery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongfeng Automobile and Tianjin Silvery

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

The idea behind Dongfeng Automobile Co and Tianjin Silvery Dragon 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.