Correlation Between PACCAR and Sinotruk

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

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

Diversification Opportunities for PACCAR and Sinotruk

0.12

Correlation Coefficient

PACCAR  Sinotruk

Average diversification

The 3 months correlation between PACCAR and Sinotruk is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Sinotruk Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinotruk Limited and PACCAR 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 PACCAR Inc are associated (or correlated) with Sinotruk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinotruk Limited has no effect on the direction of PACCAR i.e., PACCAR and Sinotruk go up and down completely randomly.

Pair Corralation between PACCAR and Sinotruk

Assuming the 90 days horizon PACCAR Inc is expected to generate 0.73 times more return on investment than Sinotruk. However, PACCAR Inc is 1.36 times less risky than Sinotruk. It trades about 0.14 of its potential returns per unit of risk. Sinotruk Limited is currently generating about 0.05 per unit of risk. If you would invest  8,422  in PACCAR Inc on September 28, 2024 and sell it today you would earn a total of  1,618  from holding PACCAR Inc or generate 19.21% return on investment over 90 days.

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

PACCAR Inc  vs.  Sinotruk Limited

PACCAR Inc

Risk-Adjusted Performance

11 of 100

Good

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

Sinotruk Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sinotruk Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sinotruk may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PACCAR and Sinotruk

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

The idea behind PACCAR Inc and Sinotruk 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.