Correlation Between Monro Muffler and China Automotive

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

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

Diversification Opportunities for Monro Muffler and China Automotive

0.43

Correlation Coefficient

Monro Muffler  China Automotive

Very weak diversification

The 3 months correlation between Monro and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Monro Muffler Brake 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 Monro Muffler 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 Monro Muffler Brake 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 Monro Muffler i.e., Monro Muffler and China Automotive go up and down completely randomly.

Pair Corralation between Monro Muffler and China Automotive

Given the investment horizon of 90 days Monro Muffler Brake is expected to under-perform the China Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Monro Muffler Brake is 1.67 times less risky than China Automotive. The stock trades about -0.04 of its potential returns per unit of risk. The China Automotive Systems is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  374.00  in China Automotive Systems on September 21, 2024 and sell it today you would earn a total of  13.00  from holding China Automotive Systems or generate 3.48% return on investment over 90 days.

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

Monro Muffler Brake  vs.  China Automotive Systems

Monro Muffler Brake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Monro Muffler is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

China Automotive Systems

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Automotive Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, China Automotive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monro Muffler and China Automotive

The main advantage of trading using opposite Monro Muffler and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monro Muffler 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 Monro Muffler Brake 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 Global Correlations module to find global opportunities by holding instruments from different markets.