Correlation Between Mercedes Benz and Guangzhou Automobile
Can any of the company-specific risk be diversified away by investing in both Mercedes Benz 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 Mercedes Benz and Guangzhou Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mercedes Benz Group AG and Guangzhou Automobile Group, you can compare the effects of market volatilities on Mercedes Benz 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 Mercedes Benz with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercedes Benz and Guangzhou Automobile.
Diversification Opportunities for Mercedes Benz and Guangzhou Automobile
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Mercedes and Guangzhou is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Mercedes Benz 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 Mercedes Benz Group AG 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 Mercedes Benz i.e., Mercedes Benz and Guangzhou Automobile go up and down completely randomly.
Pair Corralation between Mercedes Benz and Guangzhou Automobile
Assuming the 90 days horizon Mercedes Benz Group AG is expected to under-perform the Guangzhou Automobile. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mercedes Benz Group AG is 2.58 times less risky than Guangzhou Automobile. The pink sheet trades about -0.23 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 41.00 in Guangzhou Automobile Group on August 28, 2024 and sell it today you would lose (1.00) from holding Guangzhou Automobile Group or give up 2.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mercedes Benz Group AG vs. Guangzhou Automobile Group
Performance |
| Timeline |
| Mercedes Benz Group |
| Guangzhou Automobile |
Mercedes Benz and Guangzhou Automobile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mercedes Benz and Guangzhou Automobile
The main advantage of trading using opposite Mercedes Benz and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercedes Benz 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.| Mercedes Benz vs. Bayerische Motoren Werke | Mercedes Benz vs. Porsche Automobile Holding | Mercedes Benz vs. Volkswagen AG 110 | Mercedes Benz vs. Mercedes Benz Group AG |
| 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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