Correlation Between BYD Co and Canoo

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

By analyzing existing cross correlation between BYD Co Ltd and Canoo Inc, you can compare the effects of market volatilities on BYD Co and Canoo 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 BYD Co with a short position of Canoo. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Canoo.

Diversification Opportunities for BYD Co and Canoo

-0.32

Correlation Coefficient

BYD Co  Canoo

Very good diversification

The 3 months correlation between BYD and Canoo is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Canoo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canoo Inc and BYD Co 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 BYD Co Ltd are associated (or correlated) with Canoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canoo Inc has no effect on the direction of BYD Co i.e., BYD Co and Canoo go up and down completely randomly.

Pair Corralation between BYD Co and Canoo

Assuming the 90 days horizon BYD Co Ltd is expected to generate 0.16 times more return on investment than Canoo. However, BYD Co Ltd is 6.19 times less risky than Canoo. It trades about 0.2 of its potential returns per unit of risk. Canoo Inc is currently generating about -0.09 per unit of risk. If you would invest  5,179  in BYD Co Ltd on January 31, 2024 and sell it today you would earn a total of  356.00  from holding BYD Co Ltd or generate 6.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BYD Co Ltd  vs.  Canoo Inc

BYD Co

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, BYD Co showed solid returns over the last few months and may actually be approaching a breakup point.

Canoo Inc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Canoo Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Canoo is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with BYD Co and Canoo

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

The idea behind BYD Co Ltd and Canoo Inc 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.