Correlation Between BYD Co and Nio

Can any of the company-specific risk be diversified away by investing in both BYD Co and Nio 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 Nio 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 Nio Class A, you can compare the effects of market volatilities on BYD Co and Nio 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 Nio. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Nio.

Diversification Opportunities for BYD Co and Nio

0.44

Correlation Coefficient

BYD Co  Nio

Very weak diversification

The 3 months correlation between BYD and Nio is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A 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 Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of BYD Co i.e., BYD Co and Nio go up and down completely randomly.

Pair Corralation between BYD Co and Nio

Assuming the 90 days horizon BYD Co Ltd is expected to generate 0.79 times more return on investment than Nio. However, BYD Co Ltd is 1.27 times less risky than Nio. It trades about 0.22 of its potential returns per unit of risk. Nio Class A is currently generating about -0.02 per unit of risk. If you would invest  7,004  in BYD Co Ltd on December 27, 2024 and sell it today you would earn a total of  3,606  from holding BYD Co Ltd or generate 51.48% return on investment over 90 days.

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

BYD Co Ltd  vs.  Nio Class A

BYD Co

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, BYD Co showed solid returns over the last few months and may actually be approaching a breakup point.

Nio Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with BYD Co and Nio

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

The idea behind BYD Co Ltd and Nio Class A 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.