Correlation Between Branded Legacy and China Mengniu

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

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

Diversification Opportunities for Branded Legacy and China Mengniu

-0.12

Correlation Coefficient

Branded Legacy  China Mengniu

Good diversification

The 3 months correlation between Branded and China is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Branded Legacy 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 Branded Legacy 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 Branded Legacy 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 Branded Legacy i.e., Branded Legacy and China Mengniu go up and down completely randomly.

Pair Corralation between Branded Legacy and China Mengniu

Given the investment horizon of 90 days Branded Legacy is expected to generate 7.84 times more return on investment than China Mengniu. However, Branded Legacy is 7.84 times more volatile than China Mengniu Dairy. It trades about 0.07 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about -0.03 per unit of risk. If you would invest  0.80  in Branded Legacy on September 22, 2024 and sell it today you would lose (0.75) from holding Branded Legacy or give up 93.75% of portfolio value over 90 days.

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

Branded Legacy  vs.  China Mengniu Dairy

Branded Legacy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Branded Legacy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China Mengniu Dairy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Branded Legacy and China Mengniu

The main advantage of trading using opposite Branded Legacy and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Branded Legacy 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 Branded Legacy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.