Correlation Between BYD Co and Mercedes Benz
Can any of the company-specific risk be diversified away by investing in both BYD Co and Mercedes Benz 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 Mercedes Benz 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 Mercedes Benz Group AG, you can compare the effects of market volatilities on BYD Co and Mercedes Benz 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 Mercedes Benz. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Mercedes Benz.
Diversification Opportunities for BYD Co and Mercedes Benz
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BYD and Mercedes is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group 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 Mercedes Benz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of BYD Co i.e., BYD Co and Mercedes Benz go up and down completely randomly.
Pair Corralation between BYD Co and Mercedes Benz
Assuming the 90 days horizon BYD Co Ltd is expected to under-perform the Mercedes Benz. But the pink sheet apears to be less risky and, when comparing its historical volatility, BYD Co Ltd is 1.05 times less risky than Mercedes Benz. The pink sheet trades about -0.28 of its potential returns per unit of risk. The Mercedes Benz Group AG is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest 6,109 in Mercedes Benz Group AG on August 31, 2024 and sell it today you would lose (576.00) from holding Mercedes Benz Group AG or give up 9.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BYD Co Ltd vs. Mercedes Benz Group AG
Performance |
| Timeline |
| BYD Co |
| Mercedes Benz Group |
BYD Co and Mercedes Benz Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BYD Co and Mercedes Benz
The main advantage of trading using opposite BYD Co and Mercedes Benz positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co position performs unexpectedly, Mercedes Benz 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 Mercedes Benz will offset losses from the drop in Mercedes Benz's long position.The idea behind BYD Co Ltd and Mercedes Benz Group AG 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.| Mercedes Benz vs. Bayerische Motoren Werke | Mercedes Benz vs. Volkswagen AG Pref | Mercedes Benz vs. Porsche Automobile Holding | Mercedes Benz vs. Volkswagen AG |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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