Correlation Between Ferrari NV and Dongfeng

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

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

Diversification Opportunities for Ferrari NV and Dongfeng

-0.68

Correlation Coefficient

Ferrari NV  Dongfeng

Excellent diversification

The 3 months correlation between Ferrari and Dongfeng is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Dongfeng Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Group and Ferrari NV 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 Ferrari NV are associated (or correlated) with Dongfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongfeng Group has no effect on the direction of Ferrari NV i.e., Ferrari NV and Dongfeng go up and down completely randomly.

Pair Corralation between Ferrari NV and Dongfeng

Given the investment horizon of 90 days Ferrari NV is expected to under-perform the Dongfeng. But the stock apears to be less risky and, when comparing its historical volatility, Ferrari NV is 4.18 times less risky than Dongfeng. The stock trades about -0.07 of its potential returns per unit of risk. The Dongfeng Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Dongfeng Group on September 30, 2024 and sell it today you would earn a total of  25.00  from holding Dongfeng Group or generate 89.29% return on investment over 90 days.

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

Ferrari NV  vs.  Dongfeng Group

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 latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Dongfeng Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Dongfeng reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ferrari NV and Dongfeng

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

The idea behind Ferrari NV and Dongfeng Group 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 Global Correlations module to find global opportunities by holding instruments from different markets.