Correlation Between Ligao Foods and Hefei Metalforming

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

Diversification Opportunities for Ligao Foods and Hefei Metalforming

0.36

Correlation Coefficient

Ligao Foods  Hefei Metalforming

Weak diversification

The 3 months correlation between Ligao and Hefei is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ligao Foods CoLtd and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach 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 Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of Ligao Foods i.e., Ligao Foods and Hefei Metalforming go up and down completely randomly.

Pair Corralation between Ligao Foods and Hefei Metalforming

Assuming the 90 days trading horizon Ligao Foods is expected to generate 1.47 times less return on investment than Hefei Metalforming. In addition to that, Ligao Foods is 1.04 times more volatile than Hefei Metalforming Mach. It trades about 0.04 of its total potential returns per unit of risk. Hefei Metalforming Mach is currently generating about 0.06 per unit of volatility. If you would invest  619.00  in Hefei Metalforming Mach on October 11, 2024 and sell it today you would earn a total of  68.00  from holding Hefei Metalforming Mach or generate 10.99% return on investment over 90 days.

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

Ligao Foods CoLtd  vs.  Hefei Metalforming Mach

Ligao Foods CoLtd

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ligao Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hefei Metalforming Mach

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hefei Metalforming sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ligao Foods and Hefei Metalforming

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

The idea behind Ligao Foods CoLtd and Hefei Metalforming Mach 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.