Correlation Between AutoNation and China Yuchai

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

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

Diversification Opportunities for AutoNation and China Yuchai

-0.46

Correlation Coefficient

AutoNation  China Yuchai

Very good diversification

The 3 months correlation between AutoNation and China is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding AutoNation and China Yuchai International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Yuchai Interna and AutoNation 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 AutoNation are associated (or correlated) with China Yuchai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Yuchai Interna has no effect on the direction of AutoNation i.e., AutoNation and China Yuchai go up and down completely randomly.

Pair Corralation between AutoNation and China Yuchai

Allowing for the 90-day total investment horizon AutoNation is expected to generate 1.41 times more return on investment than China Yuchai. However, AutoNation is 1.41 times more volatile than China Yuchai International. It trades about 0.2 of its potential returns per unit of risk. China Yuchai International is currently generating about -0.04 per unit of risk. If you would invest  13,838  in AutoNation on February 20, 2024 and sell it today you would earn a total of  3,258  from holding AutoNation or generate 23.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

AutoNation  vs.  China Yuchai International

AutoNation

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, AutoNation displayed solid returns over the last few months and may actually be approaching a breakup point.

China Yuchai Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Yuchai International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, China Yuchai is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AutoNation and China Yuchai

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

The idea behind AutoNation and China Yuchai International 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.