Correlation Between Sichuan Fulin and Qingdao Foods

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

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

Diversification Opportunities for Sichuan Fulin and Qingdao Foods

0.77

Correlation Coefficient

Sichuan Fulin  Qingdao Foods

Poor diversification

The 3 months correlation between Sichuan and Qingdao is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Qingdao Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Foods and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Qingdao Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Foods has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Qingdao Foods go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Qingdao Foods

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to under-perform the Qingdao Foods. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Fulin Transportation is 1.06 times less risky than Qingdao Foods. The stock trades about -0.12 of its potential returns per unit of risk. The Qingdao Foods Co is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,440  in Qingdao Foods Co on October 9, 2024 and sell it today you would lose (125.00) from holding Qingdao Foods Co or give up 8.68% of portfolio value over 90 days.

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

Sichuan Fulin Transportation  vs.  Qingdao Foods Co

Sichuan Fulin Transp

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin sustained solid returns over the last few months and may actually be approaching a breakup point.

Qingdao Foods

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Qingdao Foods Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qingdao Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sichuan Fulin and Qingdao Foods

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

The idea behind Sichuan Fulin Transportation and Qingdao Foods 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.