Correlation Between BYD Co and Xiamen CD

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Can any of the company-specific risk be diversified away by investing in both BYD Co and Xiamen CD 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 Xiamen CD 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 Xiamen CD, you can compare the effects of market volatilities on BYD Co and Xiamen CD 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 Xiamen CD. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Xiamen CD.

Diversification Opportunities for BYD Co and Xiamen CD

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between BYD and Xiamen is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Xiamen CD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen CD 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 Xiamen CD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen CD has no effect on the direction of BYD Co i.e., BYD Co and Xiamen CD go up and down completely randomly.

Pair Corralation between BYD Co and Xiamen CD

Assuming the 90 days trading horizon BYD Co Ltd is expected to under-perform the Xiamen CD. But the stock apears to be less risky and, when comparing its historical volatility, BYD Co Ltd is 1.34 times less risky than Xiamen CD. The stock trades about -0.17 of its potential returns per unit of risk. The Xiamen CD is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  954.00  in Xiamen CD on August 28, 2024 and sell it today you would lose (13.00) from holding Xiamen CD or give up 1.36% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

BYD Co Ltd  vs.  Xiamen CD

 Performance 
       Timeline  
BYD Co 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BYD Co sustained solid returns over the last few months and may actually be approaching a breakup point.
Xiamen CD 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen CD are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen CD sustained solid returns over the last few months and may actually be approaching a breakup point.

BYD Co and Xiamen CD Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BYD Co and Xiamen CD

The main advantage of trading using opposite BYD Co and Xiamen CD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co position performs unexpectedly, Xiamen CD 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 Xiamen CD will offset losses from the drop in Xiamen CD's long position.
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The idea behind BYD Co Ltd and Xiamen CD 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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