Correlation Between Mercedes-Benz Group and Great Wall

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

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

Diversification Opportunities for Mercedes-Benz Group and Great Wall

0.22

Correlation Coefficient

Mercedes-Benz Group  Great Wall

Modest diversification

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

Pair Corralation between Mercedes-Benz Group and Great Wall

Assuming the 90 days horizon Mercedes-Benz Group is expected to generate 1.4 times less return on investment than Great Wall. But when comparing it to its historical volatility, Mercedes Benz Group AG is 2.07 times less risky than Great Wall. It trades about 0.14 of its potential returns per unit of risk. Great Wall Motor is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  174.00  in Great Wall Motor on December 22, 2024 and sell it today you would earn a total of  31.00  from holding Great Wall Motor or generate 17.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Mercedes Benz Group AG  vs.  Great Wall Motor

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 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Mercedes-Benz Group showed solid returns over the last few months and may actually be approaching a breakup point.

Great Wall Motor

Risk-Adjusted Performance

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 fragile essential indicators, Great Wall reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercedes-Benz Group and Great Wall

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

The idea behind Mercedes Benz Group AG and Great Wall Motor 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.