Correlation Between Muyuan Foodstuff and Western Metal

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

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

Diversification Opportunities for Muyuan Foodstuff and Western Metal

0.07

Correlation Coefficient

Muyuan Foodstuff  Western Metal

Significant diversification

The 3 months correlation between Muyuan and Western is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Muyuan Foodstuff Co and Western Metal Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Metal Materials and Muyuan Foodstuff 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 Muyuan Foodstuff Co are associated (or correlated) with Western Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Metal Materials has no effect on the direction of Muyuan Foodstuff i.e., Muyuan Foodstuff and Western Metal go up and down completely randomly.

Pair Corralation between Muyuan Foodstuff and Western Metal

Assuming the 90 days trading horizon Muyuan Foodstuff is expected to generate 58.52 times less return on investment than Western Metal. But when comparing it to its historical volatility, Muyuan Foodstuff Co is 2.67 times less risky than Western Metal. It trades about 0.01 of its potential returns per unit of risk. Western Metal Materials is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,734  in Western Metal Materials on December 25, 2024 and sell it today you would earn a total of  517.00  from holding Western Metal Materials or generate 29.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Muyuan Foodstuff Co  vs.  Western Metal Materials

Muyuan Foodstuff

Risk-Adjusted Performance

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 somewhat strong basic indicators, Muyuan Foodstuff is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Metal Materials

Risk-Adjusted Performance

Good

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

Pair Trading with Muyuan Foodstuff and Western Metal

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

The idea behind Muyuan Foodstuff Co and Western Metal Materials 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .