Correlation Between Gamma Communications and BYD
Can any of the company-specific risk be diversified away by investing in both Gamma Communications and BYD 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 Gamma Communications and BYD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gamma Communications PLC and BYD Co, you can compare the effects of market volatilities on Gamma Communications and BYD 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 Gamma Communications with a short position of BYD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gamma Communications and BYD.
Diversification Opportunities for Gamma Communications and BYD
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Gamma and BYD is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications PLC and BYD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co and Gamma Communications 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 Gamma Communications PLC are associated (or correlated) with BYD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Gamma Communications i.e., Gamma Communications and BYD go up and down completely randomly.
Pair Corralation between Gamma Communications and BYD
Assuming the 90 days trading horizon Gamma Communications PLC is expected to under-perform the BYD. But the stock apears to be less risky and, when comparing its historical volatility, Gamma Communications PLC is 4.48 times less risky than BYD. The stock trades about -0.05 of its potential returns per unit of risk. The BYD Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,709 in BYD Co on November 2, 2024 and sell it today you would earn a total of 851.00 from holding BYD Co or generate 31.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.06% |
| Values | Daily Returns |
Gamma Communications PLC vs. BYD Co
Performance |
| Timeline |
| Gamma Communications PLC |
| BYD Co |
Gamma Communications and BYD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gamma Communications and BYD
The main advantage of trading using opposite Gamma Communications and BYD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gamma Communications position performs unexpectedly, BYD 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 BYD will offset losses from the drop in BYD's long position.The idea behind Gamma Communications PLC and BYD Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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