Correlation Between Changchun Engley and Dongfeng Automobile

Can any of the company-specific risk be diversified away by investing in both Changchun Engley and Dongfeng Automobile 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 Changchun Engley and Dongfeng Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changchun Engley Automobile and Dongfeng Automobile Co, you can compare the effects of market volatilities on Changchun Engley and Dongfeng Automobile 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 Changchun Engley with a short position of Dongfeng Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun Engley and Dongfeng Automobile.

Diversification Opportunities for Changchun Engley and Dongfeng Automobile

0.71

Correlation Coefficient

Changchun Engley  Dongfeng Automobile

Poor diversification

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

Pair Corralation between Changchun Engley and Dongfeng Automobile

Assuming the 90 days trading horizon Changchun Engley Automobile is expected to under-perform the Dongfeng Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Changchun Engley Automobile is 1.37 times less risky than Dongfeng Automobile. The stock trades about -0.26 of its potential returns per unit of risk. The Dongfeng Automobile Co is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  786.00  in Dongfeng Automobile Co on October 8, 2024 and sell it today you would lose (96.00) from holding Dongfeng Automobile Co or give up 12.21% of portfolio value over 90 days.

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

Changchun Engley Automobile  vs.  Dongfeng Automobile Co

Changchun Engley Aut

Risk-Adjusted Performance

0 of 100

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 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.

Dongfeng Automobile

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Changchun Engley and Dongfeng Automobile

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

The idea behind Changchun Engley Automobile and Dongfeng Automobile Co 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.