Correlation Between Gan Yuan and Ligao Foods

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

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

Diversification Opportunities for Gan Yuan and Ligao Foods

0.93

Correlation Coefficient

Gan Yuan  Ligao Foods

Almost no diversification

The 3 months correlation between Gan and Ligao is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Gan Yuan Foods 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 Gan Yuan 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 Gan Yuan Foods 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 Gan Yuan i.e., Gan Yuan and Ligao Foods go up and down completely randomly.

Pair Corralation between Gan Yuan and Ligao Foods

Assuming the 90 days trading horizon Gan Yuan is expected to generate 1.14 times less return on investment than Ligao Foods. But when comparing it to its historical volatility, Gan Yuan Foods is 1.69 times less risky than Ligao Foods. It trades about 0.3 of its potential returns per unit of risk. Ligao Foods CoLtd is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,421  in Ligao Foods CoLtd on September 25, 2024 and sell it today you would earn a total of  620.00  from holding Ligao Foods CoLtd or generate 18.12% return on investment over 90 days.

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

Gan Yuan Foods  vs.  Ligao Foods CoLtd

Gan Yuan Foods

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gan Yuan Foods are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gan Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Ligao Foods CoLtd

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 13 (%) 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 Gan Yuan and Ligao Foods

The main advantage of trading using opposite Gan Yuan and Ligao Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gan Yuan 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 Gan Yuan Foods 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.