Correlation Between Ligao Foods and Sichuan Furong

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

Diversification Opportunities for Ligao Foods and Sichuan Furong

0.56

Correlation Coefficient

Ligao Foods  Sichuan Furong

Very weak diversification

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

Pair Corralation between Ligao Foods and Sichuan Furong

Assuming the 90 days trading horizon Ligao Foods CoLtd is expected to generate 1.17 times more return on investment than Sichuan Furong. However, Ligao Foods is 1.17 times more volatile than Sichuan Furong Technology. It trades about 0.03 of its potential returns per unit of risk. Sichuan Furong Technology is currently generating about -0.01 per unit of risk. If you would invest  3,949  in Ligao Foods CoLtd on December 30, 2024 and sell it today you would earn a total of  101.00  from holding Ligao Foods CoLtd or generate 2.56% 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.  Sichuan Furong Technology

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 2 (%) 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.

Sichuan Furong Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sichuan Furong Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sichuan Furong 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 Sichuan Furong

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

The idea behind Ligao Foods CoLtd and Sichuan Furong Technology 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.