Correlation Between BYD and Target Corp

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

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

Diversification Opportunities for BYD and Target Corp

-0.01

Correlation Coefficient

BYD  Target Corp

Good diversification

The 3 months correlation between BYD and Target is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co and Target Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Corp and BYD 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 BYD Co are associated (or correlated) with Target Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Corp has no effect on the direction of BYD i.e., BYD and Target Corp go up and down completely randomly.

Pair Corralation between BYD and Target Corp

Assuming the 90 days trading horizon BYD Co is expected to generate 1.83 times more return on investment than Target Corp. However, BYD is 1.83 times more volatile than Target Corp. It trades about 0.08 of its potential returns per unit of risk. Target Corp is currently generating about -0.07 per unit of risk. If you would invest  2,898  in BYD Co on September 24, 2024 and sell it today you would earn a total of  662.00  from holding BYD Co or generate 22.84% return on investment over 90 days.

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

BYD Co  vs.  Target Corp

BYD Co

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BYD unveiled solid returns over the last few months and may actually be approaching a breakup point.

Target Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with BYD and Target Corp

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

The idea behind BYD Co and Target Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.