Correlation Between Lear and China Automotive
Can any of the company-specific risk be diversified away by investing in both Lear and China Automotive 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 Lear and China Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and China Automotive Systems, you can compare the effects of market volatilities on Lear and China Automotive 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 Lear with a short position of China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and China Automotive.
Diversification Opportunities for Lear and China Automotive
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Lear and China is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and China Automotive Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Automotive Systems and Lear 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 Lear Corporation are associated (or correlated) with China Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Automotive Systems has no effect on the direction of Lear i.e., Lear and China Automotive go up and down completely randomly.
Pair Corralation between Lear and China Automotive
Considering the 90-day investment horizon Lear Corporation is expected to under-perform the China Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Lear Corporation is 1.9 times less risky than China Automotive. The stock trades about -0.07 of its potential returns per unit of risk. The China Automotive Systems is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 317.00 in China Automotive Systems on August 28, 2024 and sell it today you would earn a total of 118.00 from holding China Automotive Systems or generate 37.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. China Automotive Systems
Performance |
| Timeline |
| Lear |
| China Automotive Systems |
Lear and China Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and China Automotive
The main advantage of trading using opposite Lear and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear position performs unexpectedly, China Automotive 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 Automotive will offset losses from the drop in China Automotive's long position.The idea behind Lear Corporation and China Automotive Systems 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.| China Automotive vs. Dorman Products | China Automotive vs. Monro Muffler Brake | China Automotive vs. Standard Motor Products | China Automotive vs. Stoneridge |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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