Correlation Between Dongfeng and BYD Co

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

By analyzing existing cross correlation between Dongfeng Group and BYD Co Ltd, you can compare the effects of market volatilities on Dongfeng and BYD Co 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 Dongfeng with a short position of BYD Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongfeng and BYD Co.

Diversification Opportunities for Dongfeng and BYD Co

-0.22

Correlation Coefficient

Dongfeng  BYD Co

Very good diversification

The 3 months correlation between Dongfeng and BYD is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Group and BYD Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co and Dongfeng 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 Dongfeng Group are associated (or correlated) with BYD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Dongfeng i.e., Dongfeng and BYD Co go up and down completely randomly.

Pair Corralation between Dongfeng and BYD Co

Assuming the 90 days horizon Dongfeng Group is expected to under-perform the BYD Co. In addition to that, Dongfeng is 1.62 times more volatile than BYD Co Ltd. It trades about -0.01 of its total potential returns per unit of risk. BYD Co Ltd is currently generating about 0.09 per unit of volatility. If you would invest  6,666  in BYD Co Ltd on September 25, 2024 and sell it today you would earn a total of  244.00  from holding BYD Co Ltd or generate 3.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Dongfeng Group  vs.  BYD Co Ltd

Dongfeng Group

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Dongfeng reported solid returns over the last few months and may actually be approaching a breakup point.

BYD Co

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, BYD Co may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dongfeng and BYD Co

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

The idea behind Dongfeng Group and BYD Co Ltd 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.