Correlation Between Aena SME and China Mengniu

Can any of the company-specific risk be diversified away by investing in both Aena SME and China Mengniu 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 Aena SME and China Mengniu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aena SME SA and China Mengniu Dairy, you can compare the effects of market volatilities on Aena SME and China Mengniu 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 Aena SME with a short position of China Mengniu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aena SME and China Mengniu.

Diversification Opportunities for Aena SME and China Mengniu

0.63

Correlation Coefficient

Aena SME  China Mengniu

Poor diversification

The 3 months correlation between Aena and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aena SME SA and China Mengniu Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mengniu Dairy and Aena SME 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 Aena SME SA are associated (or correlated) with China Mengniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mengniu Dairy has no effect on the direction of Aena SME i.e., Aena SME and China Mengniu go up and down completely randomly.

Pair Corralation between Aena SME and China Mengniu

Assuming the 90 days horizon Aena SME is expected to generate 1.05 times less return on investment than China Mengniu. But when comparing it to its historical volatility, Aena SME SA is 2.4 times less risky than China Mengniu. It trades about 0.18 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,183  in China Mengniu Dairy on December 28, 2024 and sell it today you would earn a total of  268.00  from holding China Mengniu Dairy or generate 12.28% return on investment over 90 days.

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

Aena SME SA  vs.  China Mengniu Dairy

Aena SME SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aena SME SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Aena SME reported solid returns over the last few months and may actually be approaching a breakup point.

China Mengniu Dairy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aena SME and China Mengniu

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

The idea behind Aena SME SA and China Mengniu Dairy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.