Correlation Between Bunzl Plc and China Mengniu

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

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

Diversification Opportunities for Bunzl Plc and China Mengniu

0.05

Correlation Coefficient

Bunzl Plc  China Mengniu

Significant diversification

The 3 months correlation between Bunzl and China is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Bunzl plc 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 Bunzl Plc 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 Bunzl plc 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 Bunzl Plc i.e., Bunzl Plc and China Mengniu go up and down completely randomly.

Pair Corralation between Bunzl Plc and China Mengniu

Assuming the 90 days horizon Bunzl plc is expected to under-perform the China Mengniu. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bunzl plc is 3.17 times less risky than China Mengniu. The pink sheet trades about -0.2 of its potential returns per unit of risk. The China Mengniu Dairy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,244  in China Mengniu Dairy on October 12, 2024 and sell it today you would lose (182.00) from holding China Mengniu Dairy or give up 8.11% of portfolio value over 90 days.

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

Bunzl plc  vs.  China Mengniu Dairy

Bunzl plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bunzl plc 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 fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 fairly strong fundamental indicators, China Mengniu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bunzl Plc and China Mengniu

The main advantage of trading using opposite Bunzl Plc and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunzl Plc 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 Bunzl plc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.