Correlation Between China Yuchai and China Automotive

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

By analyzing existing cross correlation between China Yuchai International and China Automotive Systems, you can compare the effects of market volatilities on China Yuchai and China Automotive 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 China Yuchai with a short position of China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Yuchai and China Automotive.

Diversification Opportunities for China Yuchai and China Automotive

0.29

Correlation Coefficient

China Yuchai  China Automotive

Modest diversification

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

Pair Corralation between China Yuchai and China Automotive

Considering the 90-day investment horizon China Yuchai International is expected to generate 4.57 times more return on investment than China Automotive. However, China Yuchai is 4.57 times more volatile than China Automotive Systems. It trades about 0.4 of its potential returns per unit of risk. China Automotive Systems is currently generating about 0.29 per unit of risk. If you would invest  1,124  in China Yuchai International on November 29, 2024 and sell it today you would earn a total of  937.00  from holding China Yuchai International or generate 83.36% return on investment over 90 days.

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

China Yuchai International  vs.  China Automotive Systems

China Yuchai Interna

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Yuchai International are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, China Yuchai exhibited solid returns over the last few months and may actually be approaching a breakup point.

China Automotive Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Automotive Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, China Automotive is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with China Yuchai and China Automotive

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

The idea behind China Yuchai International and China Automotive Systems 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.