Correlation Between Bayerische Motoren and Dongfeng

Can any of the company-specific risk be diversified away by investing in both Bayerische Motoren and Dongfeng 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 Bayerische Motoren and Dongfeng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bayerische Motoren Werke and Dongfeng Group, you can compare the effects of market volatilities on Bayerische Motoren and Dongfeng 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 Bayerische Motoren with a short position of Dongfeng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayerische Motoren and Dongfeng.

Diversification Opportunities for Bayerische Motoren and Dongfeng

0.08

Correlation Coefficient

Bayerische Motoren  Dongfeng

Significant diversification

The 3 months correlation between Bayerische and Dongfeng is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and Dongfeng Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongfeng Group and Bayerische Motoren 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 Bayerische Motoren Werke are associated (or correlated) with Dongfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongfeng Group has no effect on the direction of Bayerische Motoren i.e., Bayerische Motoren and Dongfeng go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Dongfeng

Assuming the 90 days horizon Bayerische Motoren Werke is expected to generate 1.58 times more return on investment than Dongfeng. However, Bayerische Motoren is 1.58 times more volatile than Dongfeng Group. It trades about 0.04 of its potential returns per unit of risk. Dongfeng Group is currently generating about -0.04 per unit of risk. If you would invest  7,651  in Bayerische Motoren Werke on February 8, 2024 and sell it today you would earn a total of  3,724  from holding Bayerische Motoren Werke or generate 48.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.95%
Values	Daily Returns

Bayerische Motoren Werke  vs.  Dongfeng Group

Bayerische Motoren Werke

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Bayerische Motoren may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Dongfeng Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongfeng Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bayerische Motoren and Dongfeng

The main advantage of trading using opposite Bayerische Motoren and Dongfeng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayerische Motoren position performs unexpectedly, Dongfeng 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 Dongfeng will offset losses from the drop in Dongfeng's long position.

The idea behind Bayerische Motoren Werke and Dongfeng Group 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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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.