Correlation Between BYD Co and SoftBank Corp

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

Diversification Opportunities for BYD Co and SoftBank Corp

-0.29

Correlation Coefficient

BYD Co  SoftBank Corp

Very good diversification

The 3 months correlation between BYD and SoftBank is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and SoftBank Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftBank Corp 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 SoftBank Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftBank Corp has no effect on the direction of BYD Co i.e., BYD Co and SoftBank Corp go up and down completely randomly.

Pair Corralation between BYD Co and SoftBank Corp

Assuming the 90 days horizon BYD Co Ltd is expected to generate 2.0 times more return on investment than SoftBank Corp. However, BYD Co is 2.0 times more volatile than SoftBank Corp. It trades about 0.17 of its potential returns per unit of risk. SoftBank Corp is currently generating about 0.03 per unit of risk. If you would invest  6,572  in BYD Co Ltd on September 27, 2024 and sell it today you would earn a total of  548.00  from holding BYD Co Ltd or generate 8.34% 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.  SoftBank Corp

BYD Co

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, BYD Co is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SoftBank Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SoftBank Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, SoftBank Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BYD Co and SoftBank Corp

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

The idea behind BYD Co Ltd and SoftBank 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.