Correlation Between BKV and Fuyao Glass

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

By analyzing existing cross correlation between BKV Corporation and Fuyao Glass Industry, you can compare the effects of market volatilities on BKV and Fuyao Glass 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 BKV with a short position of Fuyao Glass. Check out your portfolio center. Please also check ongoing floating volatility patterns of BKV and Fuyao Glass.

Diversification Opportunities for BKV and Fuyao Glass

0.79

Correlation Coefficient

BKV  Fuyao Glass

Poor diversification

The 3 months correlation between BKV and Fuyao is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding BKV Corp. and Fuyao Glass Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuyao Glass Industry and BKV 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 BKV Corporation are associated (or correlated) with Fuyao Glass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuyao Glass Industry has no effect on the direction of BKV i.e., BKV and Fuyao Glass go up and down completely randomly.

Pair Corralation between BKV and Fuyao Glass

Considering the 90-day investment horizon BKV is expected to generate 1.37 times less return on investment than Fuyao Glass. But when comparing it to its historical volatility, BKV Corporation is 1.73 times less risky than Fuyao Glass. It trades about 0.18 of its potential returns per unit of risk. Fuyao Glass Industry is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  129.00  in Fuyao Glass Industry on September 22, 2024 and sell it today you would earn a total of  38.00  from holding Fuyao Glass Industry or generate 29.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.85%
Values	Daily Returns

BKV Corp.  vs.  Fuyao Glass Industry

BKV Corporation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

Fuyao Glass Industry

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fuyao Glass Industry are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Fuyao Glass showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BKV and Fuyao Glass

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

The idea behind BKV Corporation and Fuyao Glass Industry 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.