Correlation Between BYD Co and China Eastern

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Can any of the company-specific risk be diversified away by investing in both BYD Co and China Eastern 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 BYD Co and China Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BYD Co Ltd and China Eastern Airlines, you can compare the effects of market volatilities on BYD Co and China Eastern 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 BYD Co with a short position of China Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and China Eastern.

Diversification Opportunities for BYD Co and China Eastern

-0.42
  Correlation Coefficient

Very good diversification

The 3 months correlation between BYD and China is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines and BYD Co 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 BYD Co Ltd are associated (or correlated) with China Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of BYD Co i.e., BYD Co and China Eastern go up and down completely randomly.

Pair Corralation between BYD Co and China Eastern

Assuming the 90 days trading horizon BYD Co Ltd is expected to generate 1.29 times more return on investment than China Eastern. However, BYD Co is 1.29 times more volatile than China Eastern Airlines. It trades about -0.1 of its potential returns per unit of risk. China Eastern Airlines is currently generating about -0.47 per unit of risk. If you would invest  27,495  in BYD Co Ltd on October 15, 2024 and sell it today you would lose (893.00) from holding BYD Co Ltd or give up 3.25% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

BYD Co Ltd  vs.  China Eastern Airlines

 Performance 
       Timeline  
BYD Co 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BYD Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
China Eastern Airlines 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Eastern is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BYD Co and China Eastern Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BYD Co and China Eastern

The main advantage of trading using opposite BYD Co and China Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co position performs unexpectedly, China Eastern 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 China Eastern will offset losses from the drop in China Eastern's long position.
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The idea behind BYD Co Ltd and China Eastern Airlines 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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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 Transaction History module to view history of all your transactions and understand their impact on performance.

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