Can any of the company-specific risk be diversified away by investing in both Geely Automobile and Porsche Automobil 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 Geely Automobile and Porsche Automobil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Geely Automobile Holdings and Porsche Automobil Holding, you can compare the effects of market volatilities on Geely Automobile and Porsche Automobil 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 Geely Automobile with a short position of Porsche Automobil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Geely Automobile and Porsche Automobil.
Diversification Opportunities for Geely Automobile and Porsche Automobil
The 3 months correlation between Geely and Porsche is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Geely Automobile Holdings and Porsche Automobil Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porsche Automobil Holding and Geely Automobile 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 Geely Automobile Holdings are associated (or correlated) with Porsche Automobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porsche Automobil Holding has no effect on the direction of Geely Automobile i.e., Geely Automobile and Porsche Automobil go up and down completely randomly.
Pair Corralation between Geely Automobile and Porsche Automobil
Assuming the 90 days horizon Geely Automobile Holdings is expected to generate 1.25 times more return on investment than Porsche Automobil. However, Geely Automobile is 1.25 times more volatile than Porsche Automobil Holding. It trades about 0.02 of its potential returns per unit of risk. Porsche Automobil Holding is currently generating about -0.02 per unit of risk. If you would invest 122.00 in Geely Automobile Holdings on March 6, 2024 and sell it today you would earn a total of 3.00 from holding Geely Automobile Holdings or generate 2.46% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Porsche Automobil Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Porsche Automobil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.