Correlation Between China Yuchai and Donaldson

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

Diversification Opportunities for China Yuchai and Donaldson

-0.64

Correlation Coefficient

China Yuchai  Donaldson

Excellent diversification

The 3 months correlation between China and Donaldson is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Yuchai International and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson 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 Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of China Yuchai i.e., China Yuchai and Donaldson go up and down completely randomly.

Pair Corralation between China Yuchai and Donaldson

Considering the 90-day investment horizon China Yuchai International is expected to under-perform the Donaldson. In addition to that, China Yuchai is 2.14 times more volatile than Donaldson. It trades about -0.11 of its total potential returns per unit of risk. Donaldson is currently generating about 0.11 per unit of volatility. If you would invest  7,273  in Donaldson on August 30, 2024 and sell it today you would earn a total of  491.00  from holding Donaldson or generate 6.75% return on investment over 90 days.

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

China Yuchai International  vs.  Donaldson

China Yuchai Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Yuchai International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Donaldson

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with China Yuchai and Donaldson

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

The idea behind China Yuchai International and Donaldson 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.