Correlation Between Great Wall and Ferrari NV

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

By analyzing existing cross correlation between Great Wall Motor and Ferrari NV, you can compare the effects of market volatilities on Great Wall and Ferrari NV 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 Great Wall with a short position of Ferrari NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Wall and Ferrari NV.

Diversification Opportunities for Great Wall and Ferrari NV

-0.09

Correlation Coefficient

Great Wall  Ferrari NV

Good diversification

The 3 months correlation between Great and Ferrari is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Great Wall Motor and Ferrari NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrari NV and Great Wall 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 Great Wall Motor are associated (or correlated) with Ferrari NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrari NV has no effect on the direction of Great Wall i.e., Great Wall and Ferrari NV go up and down completely randomly.

Pair Corralation between Great Wall and Ferrari NV

Assuming the 90 days horizon Great Wall Motor is expected to generate 3.01 times more return on investment than Ferrari NV. However, Great Wall is 3.01 times more volatile than Ferrari NV. It trades about 0.1 of its potential returns per unit of risk. Ferrari NV is currently generating about -0.03 per unit of risk. If you would invest  141.00  in Great Wall Motor on September 13, 2024 and sell it today you would earn a total of  37.00  from holding Great Wall Motor or generate 26.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Great Wall Motor  vs.  Ferrari NV

Great Wall Motor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Wall Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Great Wall reported solid returns over the last few months and may actually be approaching a breakup point.

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ferrari NV is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Great Wall and Ferrari NV

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

The idea behind Great Wall Motor and Ferrari NV 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.