Correlation Between BYD Co and Mercedes-Benz Group

Can any of the company-specific risk be diversified away by investing in both BYD Co and Mercedes-Benz Group 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 BYD Co and Mercedes-Benz Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BYD Co Ltd and Mercedes Benz Group AG, you can compare the effects of market volatilities on BYD Co and Mercedes-Benz Group 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 BYD Co with a short position of Mercedes-Benz Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Mercedes-Benz Group.

Diversification Opportunities for BYD Co and Mercedes-Benz Group

-0.37

Correlation Coefficient

BYD Co  Mercedes-Benz Group

Very good diversification

The 3 months correlation between BYD and Mercedes-Benz is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group and BYD Co 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 BYD Co Ltd are associated (or correlated) with Mercedes-Benz Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of BYD Co i.e., BYD Co and Mercedes-Benz Group go up and down completely randomly.

Pair Corralation between BYD Co and Mercedes-Benz Group

Assuming the 90 days horizon BYD Co Ltd is expected to generate 1.49 times more return on investment than Mercedes-Benz Group. However, BYD Co is 1.49 times more volatile than Mercedes Benz Group AG. It trades about 0.06 of its potential returns per unit of risk. Mercedes Benz Group AG is currently generating about -0.18 per unit of risk. If you would invest  6,096  in BYD Co Ltd on August 30, 2024 and sell it today you would earn a total of  570.00  from holding BYD Co Ltd or generate 9.35% return on investment over 90 days.

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

BYD Co Ltd  vs.  Mercedes Benz Group AG

BYD Co

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, BYD Co may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Mercedes Benz Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercedes Benz Group AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BYD Co and Mercedes-Benz Group

The main advantage of trading using opposite BYD Co and Mercedes-Benz Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co position performs unexpectedly, Mercedes-Benz Group 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 Mercedes-Benz Group will offset losses from the drop in Mercedes-Benz Group's long position.

The idea behind BYD Co Ltd and Mercedes Benz Group AG 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.