Correlation Between Better Choice and China Mengniu

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

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

Diversification Opportunities for Better Choice and China Mengniu

0.12

Correlation Coefficient

Better Choice  China Mengniu

Average diversification

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

Pair Corralation between Better Choice and China Mengniu

Given the investment horizon of 90 days Better Choice is expected to generate 2.04 times more return on investment than China Mengniu. However, Better Choice is 2.04 times more volatile than China Mengniu Dairy. It trades about 0.11 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about 0.02 per unit of risk. If you would invest  211.00  in Better Choice on October 4, 2024 and sell it today you would earn a total of  24.00  from holding Better Choice or generate 11.37% return on investment over 90 days.

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

Better Choice  vs.  China Mengniu Dairy

Better Choice

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Better Choice are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Better Choice reported solid returns over the last few months and may actually be approaching a breakup point.

China Mengniu Dairy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Mengniu Dairy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Better Choice and China Mengniu

The main advantage of trading using opposite Better Choice and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Better Choice 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 Better Choice 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.