Correlation Between MERCEDES-BENZ GRP and BYD Company

Can any of the company-specific risk be diversified away by investing in both MERCEDES-BENZ GRP and BYD Company 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 MERCEDES-BENZ GRP and BYD Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MERCEDES BENZ GRP ADR14 and BYD Company Limited, you can compare the effects of market volatilities on MERCEDES-BENZ GRP and BYD Company 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 MERCEDES-BENZ GRP with a short position of BYD Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of MERCEDES-BENZ GRP and BYD Company.

Diversification Opportunities for MERCEDES-BENZ GRP and BYD Company

0.68

Correlation Coefficient

MERCEDES-BENZ GRP  BYD Company

Poor diversification

The 3 months correlation between MERCEDES-BENZ and BYD is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding MERCEDES BENZ GRP ADR14 and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited and MERCEDES-BENZ GRP 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 MERCEDES BENZ GRP ADR14 are associated (or correlated) with BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of MERCEDES-BENZ GRP i.e., MERCEDES-BENZ GRP and BYD Company go up and down completely randomly.

Pair Corralation between MERCEDES-BENZ GRP and BYD Company

Assuming the 90 days trading horizon MERCEDES-BENZ GRP is expected to generate 5.51 times less return on investment than BYD Company. But when comparing it to its historical volatility, MERCEDES BENZ GRP ADR14 is 1.32 times less risky than BYD Company. It trades about 0.01 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,309  in BYD Company Limited on October 13, 2024 and sell it today you would earn a total of  841.00  from holding BYD Company Limited or generate 15.84% return on investment over 90 days.

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

MERCEDES BENZ GRP ADR14  vs.  BYD Company Limited

MERCEDES BENZ GRP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCEDES BENZ GRP ADR14 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, MERCEDES-BENZ GRP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

BYD Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BYD Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MERCEDES-BENZ GRP and BYD Company

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

The idea behind MERCEDES BENZ GRP ADR14 and BYD Company Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.