Correlation Between Muyuan Foodstuff and Ligao Foods

Can any of the company-specific risk be diversified away by investing in both Muyuan Foodstuff 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 Muyuan Foodstuff and Ligao Foods 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 Ligao Foods CoLtd, you can compare the effects of market volatilities on Muyuan Foodstuff 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 Muyuan Foodstuff with a short position of Ligao Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Muyuan Foodstuff and Ligao Foods.

Diversification Opportunities for Muyuan Foodstuff and Ligao Foods

0.78

Correlation Coefficient

Muyuan Foodstuff  Ligao Foods

Poor diversification

The 3 months correlation between Muyuan and Ligao is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Muyuan Foodstuff 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 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 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 Muyuan Foodstuff i.e., Muyuan Foodstuff and Ligao Foods go up and down completely randomly.

Pair Corralation between Muyuan Foodstuff and Ligao Foods

Assuming the 90 days trading horizon Muyuan Foodstuff Co is expected to generate 0.6 times more return on investment than Ligao Foods. However, Muyuan Foodstuff Co is 1.67 times less risky than Ligao Foods. It trades about 0.01 of its potential returns per unit of risk. Ligao Foods CoLtd is currently generating about -0.02 per unit of risk. If you would invest  4,008  in Muyuan Foodstuff Co on September 12, 2024 and sell it today you would lose (33.00) from holding Muyuan Foodstuff Co or give up 0.82% of portfolio value over 90 days.

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

Muyuan Foodstuff Co  vs.  Ligao Foods CoLtd

Muyuan Foodstuff

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Muyuan Foodstuff Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Muyuan Foodstuff may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ligao Foods CoLtd

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ligao Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Muyuan Foodstuff and Ligao Foods

The main advantage of trading using opposite Muyuan Foodstuff and Ligao Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Muyuan Foodstuff 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 Muyuan Foodstuff 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.