Correlation Between Geely Automobile and Mercedes-Benz Group

Can any of the company-specific risk be diversified away by investing in both Geely Automobile and Mercedes-Benz Group 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 Geely Automobile and Mercedes-Benz Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Geely Automobile Holdings and Mercedes Benz Group AG, you can compare the effects of market volatilities on Geely Automobile and Mercedes-Benz Group 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 Geely Automobile with a short position of Mercedes-Benz Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Geely Automobile and Mercedes-Benz Group.

Diversification Opportunities for Geely Automobile and Mercedes-Benz Group

0.77

Correlation Coefficient

Geely Automobile  Mercedes-Benz Group

Poor diversification

The 3 months correlation between Geely and Mercedes-Benz is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Geely Automobile Holdings and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group and Geely Automobile 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 Geely Automobile Holdings are associated (or correlated) with Mercedes-Benz Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of Geely Automobile i.e., Geely Automobile and Mercedes-Benz Group go up and down completely randomly.

Pair Corralation between Geely Automobile and Mercedes-Benz Group

Assuming the 90 days horizon Geely Automobile Holdings is expected to generate 2.1 times more return on investment than Mercedes-Benz Group. However, Geely Automobile is 2.1 times more volatile than Mercedes Benz Group AG. It trades about 0.1 of its potential returns per unit of risk. Mercedes Benz Group AG is currently generating about 0.13 per unit of risk. If you would invest  197.00  in Geely Automobile Holdings on December 20, 2024 and sell it today you would earn a total of  42.00  from holding Geely Automobile Holdings or generate 21.32% return on investment over 90 days.

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

Geely Automobile Holdings  vs.  Mercedes Benz Group AG

Geely Automobile Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Mercedes Benz Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Mercedes-Benz Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Geely Automobile and Mercedes-Benz Group

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

The idea behind Geely Automobile Holdings and Mercedes Benz Group AG 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.