Correlation Between Mazda and Geely Automobile

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

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

Diversification Opportunities for Mazda and Geely Automobile

-0.69

Correlation Coefficient

Mazda  Geely Automobile

Excellent diversification

The 3 months correlation between Mazda and Geely is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Mazda Motor and Geely Automobile Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geely Automobile Holdings and Mazda 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 Mazda Motor are associated (or correlated) with Geely Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geely Automobile Holdings has no effect on the direction of Mazda i.e., Mazda and Geely Automobile go up and down completely randomly.

Pair Corralation between Mazda and Geely Automobile

Assuming the 90 days horizon Mazda Motor is expected to under-perform the Geely Automobile. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mazda Motor is 1.33 times less risky than Geely Automobile. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Geely Automobile Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,285  in Geely Automobile Holdings on September 5, 2024 and sell it today you would earn a total of  1,420  from holding Geely Automobile Holdings or generate 62.14% return on investment over 90 days.

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

Mazda Motor  vs.  Geely Automobile Holdings

Mazda Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mazda Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Geely Automobile Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Geely Automobile showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mazda and Geely Automobile

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

The idea behind Mazda Motor and Geely Automobile Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.