Correlation Between Dana and China Automotive

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

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

Diversification Opportunities for Dana and China Automotive

0.06

Correlation Coefficient

Dana  China Automotive

Significant diversification

The 3 months correlation between Dana and China is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dana Inc 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 Dana 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 Dana Inc 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 Dana i.e., Dana and China Automotive go up and down completely randomly.

Pair Corralation between Dana and China Automotive

Considering the 90-day investment horizon Dana is expected to generate 7.17 times less return on investment than China Automotive. But when comparing it to its historical volatility, Dana Inc is 1.32 times less risky than China Automotive. It trades about 0.02 of its potential returns per unit of risk. China Automotive Systems is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  338.00  in China Automotive Systems on January 19, 2024 and sell it today you would earn a total of  16.00  from holding China Automotive Systems or generate 4.73% return on investment over 90 days.

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

Dana Inc  vs.  China Automotive Systems

Dana Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dana Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

China Automotive Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Automotive Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, China Automotive may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Dana and China Automotive

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

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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 Transaction History module to view history of all your transactions and understand their impact on performance.