Correlation Between Beijing YanDong and Ligao Foods

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

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

Diversification Opportunities for Beijing YanDong and Ligao Foods

0.28

Correlation Coefficient

Beijing YanDong  Ligao Foods

Modest diversification

The 3 months correlation between Beijing and Ligao is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Beijing YanDong MicroElectroni 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 Beijing YanDong 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 Beijing YanDong MicroElectronic 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 Beijing YanDong i.e., Beijing YanDong and Ligao Foods go up and down completely randomly.

Pair Corralation between Beijing YanDong and Ligao Foods

Assuming the 90 days trading horizon Beijing YanDong MicroElectronic is expected to under-perform the Ligao Foods. But the stock apears to be less risky and, when comparing its historical volatility, Beijing YanDong MicroElectronic is 1.31 times less risky than Ligao Foods. The stock trades about -0.32 of its potential returns per unit of risk. The Ligao Foods CoLtd is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,823  in Ligao Foods CoLtd on October 7, 2024 and sell it today you would lose (51.00) from holding Ligao Foods CoLtd or give up 1.33% of portfolio value over 90 days.

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

Beijing YanDong MicroElectroni  vs.  Ligao Foods CoLtd

Beijing YanDong Micr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing YanDong MicroElectronic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beijing YanDong 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

0 of 100

Very Weak

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

Pair Trading with Beijing YanDong and Ligao Foods

The main advantage of trading using opposite Beijing YanDong and Ligao Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing YanDong 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 Beijing YanDong MicroElectronic 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.