Correlation Between China Vanke and Ligao Foods

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

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

Diversification Opportunities for China Vanke and Ligao Foods

0.51

Correlation Coefficient

China Vanke  Ligao Foods

Very weak diversification

The 3 months correlation between China and Ligao is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding China Vanke Co and Ligao Foods CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ligao Foods CoLtd and China Vanke 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 China Vanke Co are associated (or correlated) with Ligao Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ligao Foods CoLtd has no effect on the direction of China Vanke i.e., China Vanke and Ligao Foods go up and down completely randomly.

Pair Corralation between China Vanke and Ligao Foods

Assuming the 90 days trading horizon China Vanke Co is expected to under-perform the Ligao Foods. But the stock apears to be less risky and, when comparing its historical volatility, China Vanke Co is 1.07 times less risky than Ligao Foods. The stock trades about -0.01 of its potential returns per unit of risk. The Ligao Foods CoLtd is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,949  in Ligao Foods CoLtd on December 29, 2024 and sell it today you would earn a total of  101.00  from holding Ligao Foods CoLtd or generate 2.56% return on investment over 90 days.

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

China Vanke Co  vs.  Ligao Foods CoLtd

China Vanke

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Vanke Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Vanke is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ligao Foods CoLtd

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ligao Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Vanke and Ligao Foods

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

The idea behind China Vanke Co and Ligao Foods CoLtd 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.