Correlation Between China Mengniu and China Vanke

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

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

Diversification Opportunities for China Mengniu and China Vanke

0.84

Correlation Coefficient

China Mengniu  China Vanke

Very poor diversification

The 3 months correlation between China and China is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and China Vanke Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Vanke and China Mengniu 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 China Mengniu Dairy are associated (or correlated) with China Vanke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Vanke has no effect on the direction of China Mengniu i.e., China Mengniu and China Vanke go up and down completely randomly.

Pair Corralation between China Mengniu and China Vanke

Assuming the 90 days horizon China Mengniu Dairy is expected to generate 0.36 times more return on investment than China Vanke. However, China Mengniu Dairy is 2.76 times less risky than China Vanke. It trades about 0.0 of its potential returns per unit of risk. China Vanke Co is currently generating about -0.07 per unit of risk. If you would invest  2,164  in China Mengniu Dairy on August 31, 2024 and sell it today you would lose (20.00) from holding China Mengniu Dairy or give up 0.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

China Mengniu Dairy  vs.  China Vanke Co

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 weak fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

China Vanke

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with China Mengniu and China Vanke

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

The idea behind China Mengniu Dairy and China Vanke Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.