Correlation Between Ligao Foods and Guangdong Qunxing

Can any of the company-specific risk be diversified away by investing in both Ligao Foods and Guangdong Qunxing 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 Guangdong Qunxing 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 Guangdong Qunxing Toys, you can compare the effects of market volatilities on Ligao Foods and Guangdong Qunxing 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 Guangdong Qunxing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ligao Foods and Guangdong Qunxing.

Diversification Opportunities for Ligao Foods and Guangdong Qunxing

0.56

Correlation Coefficient

Ligao Foods  Guangdong Qunxing

Very weak diversification

The 3 months correlation between Ligao and Guangdong is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Ligao Foods CoLtd and Guangdong Qunxing Toys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Qunxing Toys 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 Guangdong Qunxing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Qunxing Toys has no effect on the direction of Ligao Foods i.e., Ligao Foods and Guangdong Qunxing go up and down completely randomly.

Pair Corralation between Ligao Foods and Guangdong Qunxing

Assuming the 90 days trading horizon Ligao Foods is expected to generate 14.82 times less return on investment than Guangdong Qunxing. But when comparing it to its historical volatility, Ligao Foods CoLtd is 1.94 times less risky than Guangdong Qunxing. It trades about 0.01 of its potential returns per unit of risk. Guangdong Qunxing Toys is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  724.00  in Guangdong Qunxing Toys on December 26, 2024 and sell it today you would earn a total of  216.00  from holding Guangdong Qunxing Toys or generate 29.83% return on investment over 90 days.

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

Ligao Foods CoLtd  vs.  Guangdong Qunxing Toys

Ligao Foods CoLtd

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Guangdong Qunxing Toys

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Qunxing Toys are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Qunxing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ligao Foods and Guangdong Qunxing

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

The idea behind Ligao Foods CoLtd and Guangdong Qunxing Toys 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.