Correlation Between Jiahe Foods and Muyuan Foodstuff

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

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

Diversification Opportunities for Jiahe Foods and Muyuan Foodstuff

0.55

Correlation Coefficient

Jiahe Foods  Muyuan Foodstuff

Very weak diversification

The 3 months correlation between Jiahe and Muyuan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Jiahe Foods Industry and Muyuan Foodstuff Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muyuan Foodstuff and Jiahe 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 Jiahe Foods Industry 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 Jiahe Foods i.e., Jiahe Foods and Muyuan Foodstuff go up and down completely randomly.

Pair Corralation between Jiahe Foods and Muyuan Foodstuff

Assuming the 90 days trading horizon Jiahe Foods Industry is expected to generate 1.37 times more return on investment than Muyuan Foodstuff. However, Jiahe Foods is 1.37 times more volatile than Muyuan Foodstuff Co. It trades about 0.22 of its potential returns per unit of risk. Muyuan Foodstuff Co is currently generating about 0.06 per unit of risk. If you would invest  1,106  in Jiahe Foods Industry on September 4, 2024 and sell it today you would earn a total of  569.00  from holding Jiahe Foods Industry or generate 51.45% return on investment over 90 days.

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

Jiahe Foods Industry  vs.  Muyuan Foodstuff Co

Jiahe Foods Industry

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiahe Foods Industry are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiahe Foods 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 Jiahe Foods and Muyuan Foodstuff

The main advantage of trading using opposite Jiahe Foods and Muyuan Foodstuff positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jiahe Foods 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 Jiahe Foods Industry 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.

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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 Anywhere module to track or share privately all of your investments from the convenience of any device.