Correlation Between Autoliv and China Automotive

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

By analyzing existing cross correlation between Autoliv and China Automotive Systems, you can compare the effects of market volatilities on Autoliv 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 Autoliv with a short position of China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Autoliv and China Automotive.

Diversification Opportunities for Autoliv and China Automotive

0.1

Correlation Coefficient

Autoliv  China Automotive

Average diversification

The 3 months correlation between Autoliv and China is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Autoliv 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 Autoliv 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 Autoliv 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 Autoliv i.e., Autoliv and China Automotive go up and down completely randomly.

Pair Corralation between Autoliv and China Automotive

Considering the 90-day investment horizon Autoliv is expected to under-perform the China Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Autoliv is 2.52 times less risky than China Automotive. The stock trades about -0.23 of its potential returns per unit of risk. The China Automotive Systems is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  346.00  in China Automotive Systems on January 20, 2024 and sell it today you would earn a total of  19.00  from holding China Automotive Systems or generate 5.49% return on investment over 90 days.

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

Autoliv  vs.  China Automotive Systems

Autoliv

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Autoliv are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Autoliv may actually be approaching a critical reversion point that can send shares even higher in May 2024.

China Automotive Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Automotive Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Automotive is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Autoliv and China Automotive

The main advantage of trading using opposite Autoliv and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autoliv 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 Autoliv 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.