Correlation Between DENSO P and Fuyao Glass

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

By analyzing existing cross correlation between DENSO P ADR and Fuyao Glass Industry, you can compare the effects of market volatilities on DENSO P and Fuyao Glass 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 DENSO P with a short position of Fuyao Glass. Check out your portfolio center. Please also check ongoing floating volatility patterns of DENSO P and Fuyao Glass.

Diversification Opportunities for DENSO P and Fuyao Glass

-0.04

Correlation Coefficient

DENSO P  Fuyao Glass

Good diversification

The 3 months correlation between DENSO and Fuyao is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding DENSO P ADR and Fuyao Glass Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuyao Glass Industry and DENSO P 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 DENSO P ADR are associated (or correlated) with Fuyao Glass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuyao Glass Industry has no effect on the direction of DENSO P i.e., DENSO P and Fuyao Glass go up and down completely randomly.

Pair Corralation between DENSO P and Fuyao Glass

Assuming the 90 days trading horizon DENSO P ADR is expected to under-perform the Fuyao Glass. But the stock apears to be less risky and, when comparing its historical volatility, DENSO P ADR is 1.42 times less risky than Fuyao Glass. The stock trades about -0.01 of its potential returns per unit of risk. The Fuyao Glass Industry is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  560.00  in Fuyao Glass Industry on September 22, 2024 and sell it today you would earn a total of  95.00  from holding Fuyao Glass Industry or generate 16.96% return on investment over 90 days.

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

DENSO P ADR  vs.  Fuyao Glass Industry

DENSO P ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fuyao Glass Industry

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fuyao Glass Industry are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fuyao Glass reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENSO P and Fuyao Glass

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

The idea behind DENSO P ADR and Fuyao Glass Industry 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.