Correlation Between Changchun and Muyuan Foodstuff

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

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

Diversification Opportunities for Changchun and Muyuan Foodstuff

0.2

Correlation Coefficient

Changchun  Muyuan Foodstuff

Modest diversification

The 3 months correlation between Changchun and Muyuan is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Changchun UP Optotech and Muyuan Foodstuff Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muyuan Foodstuff and Changchun 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 Changchun UP Optotech are associated (or correlated) with Muyuan Foodstuff. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muyuan Foodstuff has no effect on the direction of Changchun i.e., Changchun and Muyuan Foodstuff go up and down completely randomly.

Pair Corralation between Changchun and Muyuan Foodstuff

Assuming the 90 days trading horizon Changchun UP Optotech is expected to generate 1.93 times more return on investment than Muyuan Foodstuff. However, Changchun is 1.93 times more volatile than Muyuan Foodstuff Co. It trades about 0.05 of its potential returns per unit of risk. Muyuan Foodstuff Co is currently generating about -0.01 per unit of risk. If you would invest  2,325  in Changchun UP Optotech on October 3, 2024 and sell it today you would earn a total of  1,447  from holding Changchun UP Optotech or generate 62.24% return on investment over 90 days.

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

Changchun UP Optotech  vs.  Muyuan Foodstuff Co

Changchun UP Optotech

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun sustained solid returns over the last few months and may actually be approaching a breakup point.

Muyuan Foodstuff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Muyuan Foodstuff Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Changchun and Muyuan Foodstuff

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

The idea behind Changchun UP Optotech and Muyuan Foodstuff Co 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.