Correlation Between Dongfeng and Guangzhou Automobile
Can any of the company-specific risk be diversified away by investing in both Dongfeng and Guangzhou 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 Dongfeng and Guangzhou Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dongfeng Group and Guangzhou Automobile Group, you can compare the effects of market volatilities on Dongfeng and Guangzhou 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 Dongfeng with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongfeng and Guangzhou Automobile.
Diversification Opportunities for Dongfeng and Guangzhou Automobile
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dongfeng and Guangzhou is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Group and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Dongfeng 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 Dongfeng Group are associated (or correlated) with Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of Dongfeng i.e., Dongfeng and Guangzhou Automobile go up and down completely randomly.
Pair Corralation between Dongfeng and Guangzhou Automobile
Assuming the 90 days horizon Dongfeng Group is expected to generate 1.49 times more return on investment than Guangzhou Automobile. However, Dongfeng is 1.49 times more volatile than Guangzhou Automobile Group. It trades about 0.28 of its potential returns per unit of risk. Guangzhou Automobile Group is currently generating about 0.01 per unit of risk. If you would invest 32.00 in Dongfeng Group on August 28, 2024 and sell it today you would earn a total of 18.00 from holding Dongfeng Group or generate 56.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dongfeng Group vs. Guangzhou Automobile Group
Performance |
| Timeline |
| Dongfeng Group |
| Guangzhou Automobile |
Dongfeng and Guangzhou Automobile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dongfeng and Guangzhou Automobile
The main advantage of trading using opposite Dongfeng and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongfeng position performs unexpectedly, Guangzhou 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 Guangzhou Automobile will offset losses from the drop in Guangzhou Automobile's long position.| Dongfeng vs. Isuzu Motors | Dongfeng vs. Renault SA | Dongfeng vs. Toyota Motor Corp | Dongfeng vs. Porsche Automobile Holding |
| Guangzhou Automobile vs. Great Wall Motor | Guangzhou Automobile vs. Dongfeng Group | Guangzhou Automobile vs. Great Wall Motor | Guangzhou Automobile vs. BAIC Motor |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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