Correlation Between BG Foods and China Feihe

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

By analyzing existing cross correlation between BG Foods and China Feihe Limited, you can compare the effects of market volatilities on BG Foods and China Feihe 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 BG Foods with a short position of China Feihe. Check out your portfolio center. Please also check ongoing floating volatility patterns of BG Foods and China Feihe.

Diversification Opportunities for BG Foods and China Feihe

-0.4

Correlation Coefficient

BG Foods  China Feihe

Very good diversification

The 3 months correlation between BGS and China is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding BG Foods and China Feihe Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Feihe Limited and BG 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 BG Foods are associated (or correlated) with China Feihe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Feihe Limited has no effect on the direction of BG Foods i.e., BG Foods and China Feihe go up and down completely randomly.

Pair Corralation between BG Foods and China Feihe

Considering the 90-day investment horizon BG Foods is expected to under-perform the China Feihe. But the stock apears to be less risky and, when comparing its historical volatility, BG Foods is 3.78 times less risky than China Feihe. The stock trades about -0.07 of its potential returns per unit of risk. The China Feihe Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  23.00  in China Feihe Limited on September 7, 2024 and sell it today you would earn a total of  47.00  from holding China Feihe Limited or generate 204.35% return on investment over 90 days.

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

BG Foods  vs.  China Feihe Limited

BG Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BG Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

China Feihe Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Feihe Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, China Feihe reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BG Foods and China Feihe

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

The idea behind BG Foods and China Feihe Limited 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.