Correlation Between Guangdong Liantai and Youyou Foods

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

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

Diversification Opportunities for Guangdong Liantai and Youyou Foods

0.88

Correlation Coefficient

Guangdong Liantai  Youyou Foods

Very poor diversification

The 3 months correlation between Guangdong and Youyou is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Youyou Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youyou Foods and Guangdong Liantai 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 Guangdong Liantai Environmental are associated (or correlated) with Youyou Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youyou Foods has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Youyou Foods go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Youyou Foods

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to under-perform the Youyou Foods. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Liantai Environmental is 1.15 times less risky than Youyou Foods. The stock trades about -0.05 of its potential returns per unit of risk. The Youyou Foods Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  913.00  in Youyou Foods Co on October 6, 2024 and sell it today you would earn a total of  83.00  from holding Youyou Foods Co or generate 9.09% return on investment over 90 days.

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

Guangdong Liantai Environmenta  vs.  Youyou Foods Co

Guangdong Liantai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Liantai Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Liantai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Youyou Foods

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youyou Foods Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Youyou Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Liantai and Youyou Foods

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

The idea behind Guangdong Liantai Environmental and Youyou Foods 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.