Correlation Between Ligao Foods and Liaoning Chengda

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

Diversification Opportunities for Ligao Foods and Liaoning Chengda

0.48

Correlation Coefficient

Ligao Foods  Liaoning Chengda

Very weak diversification

The 3 months correlation between Ligao and Liaoning is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ligao Foods CoLtd and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio 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 Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Ligao Foods i.e., Ligao Foods and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Ligao Foods and Liaoning Chengda

Assuming the 90 days trading horizon Ligao Foods CoLtd is expected to generate 1.79 times more return on investment than Liaoning Chengda. However, Ligao Foods is 1.79 times more volatile than Liaoning Chengda Biotechnology. It trades about 0.04 of its potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about 0.03 per unit of risk. If you would invest  3,980  in Ligao Foods CoLtd on December 3, 2024 and sell it today you would earn a total of  198.00  from holding Ligao Foods CoLtd or generate 4.97% 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.  Liaoning Chengda Biotechnology

Ligao Foods CoLtd

Risk-Adjusted Performance

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 April 2025.

Liaoning Chengda Bio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Chengda Biotechnology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Liaoning Chengda 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 Liaoning Chengda

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

The idea behind Ligao Foods CoLtd and Liaoning Chengda Biotechnology 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .