Correlation Between Panda Dairy and New China

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

By analyzing existing cross correlation between Panda Dairy Corp and New China Life, you can compare the effects of market volatilities on Panda Dairy and New China 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 Panda Dairy with a short position of New China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Panda Dairy and New China.

Diversification Opportunities for Panda Dairy and New China

0.27

Correlation Coefficient

Panda Dairy  New China

Modest diversification

The 3 months correlation between Panda and New is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Panda Dairy Corp and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Panda Dairy 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 Panda Dairy Corp are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Panda Dairy i.e., Panda Dairy and New China go up and down completely randomly.

Pair Corralation between Panda Dairy and New China

Assuming the 90 days trading horizon Panda Dairy is expected to generate 1.14 times less return on investment than New China. In addition to that, Panda Dairy is 1.45 times more volatile than New China Life. It trades about 0.03 of its total potential returns per unit of risk. New China Life is currently generating about 0.04 per unit of volatility. If you would invest  3,221  in New China Life on October 10, 2024 and sell it today you would earn a total of  1,343  from holding New China Life or generate 41.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Panda Dairy Corp  vs.  New China Life

Panda Dairy Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Panda Dairy Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Panda Dairy sustained solid returns over the last few months and may actually be approaching a breakup point.

New China Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New China Life has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Panda Dairy and New China

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

The idea behind Panda Dairy Corp and New China Life 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.