Correlation Between Huafa Industrial and Muyuan Foodstuff

Can any of the company-specific risk be diversified away by investing in both Huafa Industrial and Muyuan Foodstuff 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 Huafa Industrial and Muyuan Foodstuff into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huafa Industrial Co and Muyuan Foodstuff Co, you can compare the effects of market volatilities on Huafa Industrial and Muyuan Foodstuff 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 Huafa Industrial with a short position of Muyuan Foodstuff. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huafa Industrial and Muyuan Foodstuff.

Diversification Opportunities for Huafa Industrial and Muyuan Foodstuff

0.93

Correlation Coefficient

Huafa Industrial  Muyuan Foodstuff

Almost no diversification

The 3 months correlation between Huafa and Muyuan is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Muyuan Foodstuff Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muyuan Foodstuff and Huafa Industrial 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 Huafa Industrial Co are associated (or correlated) with Muyuan Foodstuff. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muyuan Foodstuff has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Muyuan Foodstuff go up and down completely randomly.

Pair Corralation between Huafa Industrial and Muyuan Foodstuff

Assuming the 90 days trading horizon Huafa Industrial Co is expected to generate 1.37 times more return on investment than Muyuan Foodstuff. However, Huafa Industrial is 1.37 times more volatile than Muyuan Foodstuff Co. It trades about -0.01 of its potential returns per unit of risk. Muyuan Foodstuff Co is currently generating about -0.24 per unit of risk. If you would invest  684.00  in Huafa Industrial Co on September 4, 2024 and sell it today you would lose (6.00) from holding Huafa Industrial Co or give up 0.88% of portfolio value over 90 days.

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

Huafa Industrial Co  vs.  Muyuan Foodstuff Co

Huafa Industrial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huafa Industrial Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huafa Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Muyuan Foodstuff

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Muyuan Foodstuff Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Muyuan Foodstuff may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Huafa Industrial and Muyuan Foodstuff

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

The idea behind Huafa Industrial Co and Muyuan Foodstuff Co 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.