Correlation Between China Automotive and Adient PLC

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

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

Diversification Opportunities for China Automotive and Adient PLC

-0.35

Correlation Coefficient

China Automotive  Adient PLC

Very good diversification

The 3 months correlation between China and Adient is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding China Automotive Systems and Adient PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adient PLC and China Automotive 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 China Automotive Systems are associated (or correlated) with Adient PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adient PLC has no effect on the direction of China Automotive i.e., China Automotive and Adient PLC go up and down completely randomly.

Pair Corralation between China Automotive and Adient PLC

Given the investment horizon of 90 days China Automotive Systems is expected to generate 1.64 times more return on investment than Adient PLC. However, China Automotive is 1.64 times more volatile than Adient PLC. It trades about 0.02 of its potential returns per unit of risk. Adient PLC is currently generating about 0.01 per unit of risk. If you would invest  409.00  in China Automotive Systems on January 19, 2024 and sell it today you would lose (40.00) from holding China Automotive Systems or give up 9.78% of portfolio value over 90 days.

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

China Automotive Systems  vs.  Adient PLC

China Automotive Systems

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Automotive Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, China Automotive unveiled solid returns over the last few months and may actually be approaching a breakup point.

Adient PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adient PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with China Automotive and Adient PLC

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

The idea behind China Automotive Systems and Adient PLC 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.