Correlation Between Ligao Foods and Zhongshan Broad

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

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

Diversification Opportunities for Ligao Foods and Zhongshan Broad

0.7

Correlation Coefficient

Ligao Foods  Zhongshan Broad

Poor diversification

The 3 months correlation between Ligao and Zhongshan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ligao Foods CoLtd and Zhongshan Broad Ocean Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongshan Broad Ocean and Ligao Foods 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 Ligao Foods CoLtd are associated (or correlated) with Zhongshan Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongshan Broad Ocean has no effect on the direction of Ligao Foods i.e., Ligao Foods and Zhongshan Broad go up and down completely randomly.

Pair Corralation between Ligao Foods and Zhongshan Broad

Assuming the 90 days trading horizon Ligao Foods CoLtd is expected to generate 1.78 times more return on investment than Zhongshan Broad. However, Ligao Foods is 1.78 times more volatile than Zhongshan Broad Ocean Motor. It trades about 0.0 of its potential returns per unit of risk. Zhongshan Broad Ocean Motor is currently generating about -0.05 per unit of risk. If you would invest  3,958  in Ligao Foods CoLtd on October 8, 2024 and sell it today you would lose (186.00) from holding Ligao Foods CoLtd or give up 4.7% of portfolio value over 90 days.

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

Ligao Foods CoLtd  vs.  Zhongshan Broad Ocean Motor

Ligao Foods CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ligao Foods CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ligao Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zhongshan Broad Ocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhongshan Broad Ocean Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhongshan Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ligao Foods and Zhongshan Broad

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

The idea behind Ligao Foods CoLtd and Zhongshan Broad Ocean Motor 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..