Correlation Between Dongfeng Automobile and Cambricon Technologies

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

Diversification Opportunities for Dongfeng Automobile and Cambricon Technologies

0.85

Correlation Coefficient

Dongfeng Automobile  Cambricon Technologies

Very poor diversification

The 3 months correlation between Dongfeng and Cambricon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Automobile Co and Cambricon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambricon Technologies 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 Cambricon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambricon Technologies has no effect on the direction of Dongfeng Automobile i.e., Dongfeng Automobile and Cambricon Technologies go up and down completely randomly.

Pair Corralation between Dongfeng Automobile and Cambricon Technologies

Assuming the 90 days trading horizon Dongfeng Automobile Co is expected to under-perform the Cambricon Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Dongfeng Automobile Co is 1.1 times less risky than Cambricon Technologies. The stock trades about -0.02 of its potential returns per unit of risk. The Cambricon Technologies Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  47,400  in Cambricon Technologies Corp on September 14, 2024 and sell it today you would earn a total of  10,299  from holding Cambricon Technologies Corp or generate 21.73% return on investment over 90 days.

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

Dongfeng Automobile Co  vs.  Cambricon Technologies Corp

Dongfeng Automobile

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Automobile Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongfeng Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Cambricon Technologies

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cambricon Technologies Corp are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cambricon Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongfeng Automobile and Cambricon Technologies

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

The idea behind Dongfeng Automobile Co and Cambricon Technologies Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.