Correlation Between Xiangpiaopiao Food and Dongfeng Automobile

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

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

Diversification Opportunities for Xiangpiaopiao Food and Dongfeng Automobile

0.74

Correlation Coefficient

Xiangpiaopiao Food  Dongfeng Automobile

Poor diversification

The 3 months correlation between Xiangpiaopiao and Dongfeng is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Xiangpiaopiao Food Co and Dongfeng Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Automobile and Xiangpiaopiao Food 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 Xiangpiaopiao Food Co 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 Xiangpiaopiao Food i.e., Xiangpiaopiao Food and Dongfeng Automobile go up and down completely randomly.

Pair Corralation between Xiangpiaopiao Food and Dongfeng Automobile

Assuming the 90 days trading horizon Xiangpiaopiao Food Co is expected to generate 1.38 times more return on investment than Dongfeng Automobile. However, Xiangpiaopiao Food is 1.38 times more volatile than Dongfeng Automobile Co. It trades about 0.1 of its potential returns per unit of risk. Dongfeng Automobile Co is currently generating about 0.05 per unit of risk. If you would invest  1,181  in Xiangpiaopiao Food Co on October 10, 2024 and sell it today you would earn a total of  326.00  from holding Xiangpiaopiao Food Co or generate 27.6% return on investment over 90 days.

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

Xiangpiaopiao Food Co  vs.  Dongfeng Automobile Co

Xiangpiaopiao Food

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xiangpiaopiao Food Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiangpiaopiao Food sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Xiangpiaopiao Food and Dongfeng Automobile

The main advantage of trading using opposite Xiangpiaopiao Food and Dongfeng Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiangpiaopiao Food 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 Xiangpiaopiao Food Co 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.

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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.