Correlation Between Ferrari NV and BYD Company

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

By analyzing existing cross correlation between Ferrari NV and BYD Company Limited, you can compare the effects of market volatilities on Ferrari NV and BYD Company 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 Ferrari NV with a short position of BYD Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferrari NV and BYD Company.

Diversification Opportunities for Ferrari NV and BYD Company

0.29

Correlation Coefficient

Ferrari NV  BYD Company

Modest diversification

The 3 months correlation between Ferrari and BYD is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited and Ferrari NV 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 Ferrari NV are associated (or correlated) with BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Ferrari NV i.e., Ferrari NV and BYD Company go up and down completely randomly.

Pair Corralation between Ferrari NV and BYD Company

Given the investment horizon of 90 days Ferrari NV is expected to under-perform the BYD Company. But the stock apears to be less risky and, when comparing its historical volatility, Ferrari NV is 1.69 times less risky than BYD Company. The stock trades about -0.13 of its potential returns per unit of risk. The BYD Company Limited is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  3,000  in BYD Company Limited on July 3, 2024 and sell it today you would earn a total of  550.00  from holding BYD Company Limited or generate 18.33% return on investment over 90 days.

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

Ferrari NV  vs.  BYD Company Limited

Ferrari NV

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrari NV are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Ferrari NV may actually be approaching a critical reversion point that can send shares even higher in November 2024.

BYD Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, BYD Company reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ferrari NV and BYD Company

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

The idea behind Ferrari NV and BYD Company Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.