Correlation Between Xiamen Goldenhome and Ligao Foods

Can any of the company-specific risk be diversified away by investing in both Xiamen Goldenhome and Ligao Foods 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 Xiamen Goldenhome and Ligao Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xiamen Goldenhome Co and Ligao Foods CoLtd, you can compare the effects of market volatilities on Xiamen Goldenhome and Ligao Foods 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 Xiamen Goldenhome with a short position of Ligao Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiamen Goldenhome and Ligao Foods.

Diversification Opportunities for Xiamen Goldenhome and Ligao Foods

0.87

Correlation Coefficient

Xiamen Goldenhome  Ligao Foods

Very poor diversification

The 3 months correlation between Xiamen and Ligao is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Xiamen Goldenhome Co and Ligao Foods CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ligao Foods CoLtd and Xiamen Goldenhome 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 Xiamen Goldenhome Co are associated (or correlated) with Ligao Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ligao Foods CoLtd has no effect on the direction of Xiamen Goldenhome i.e., Xiamen Goldenhome and Ligao Foods go up and down completely randomly.

Pair Corralation between Xiamen Goldenhome and Ligao Foods

Assuming the 90 days trading horizon Xiamen Goldenhome is expected to generate 1.33 times less return on investment than Ligao Foods. But when comparing it to its historical volatility, Xiamen Goldenhome Co is 1.41 times less risky than Ligao Foods. It trades about 0.03 of its potential returns per unit of risk. Ligao Foods CoLtd is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,456  in Ligao Foods CoLtd on October 10, 2024 and sell it today you would earn a total of  120.00  from holding Ligao Foods CoLtd or generate 3.47% return on investment over 90 days.

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

Xiamen Goldenhome Co  vs.  Ligao Foods CoLtd

Xiamen Goldenhome

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Goldenhome Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiamen Goldenhome is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ligao Foods CoLtd

Risk-Adjusted Performance

2 of 100

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 weak basic indicators, Ligao Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Xiamen Goldenhome and Ligao Foods

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

The idea behind Xiamen Goldenhome Co and Ligao Foods CoLtd 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.