Correlation Between China Mengniu and Cult Food

Can any of the company-specific risk be diversified away by investing in both China Mengniu and Cult Food 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 Cult Food 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 Cult Food Science, you can compare the effects of market volatilities on China Mengniu and Cult Food 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 Cult Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Mengniu and Cult Food.

Diversification Opportunities for China Mengniu and Cult Food

-0.33

Correlation Coefficient

China Mengniu  Cult Food

Very good diversification

The 3 months correlation between China and Cult is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and Cult Food Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cult Food Science 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 Cult Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cult Food Science has no effect on the direction of China Mengniu i.e., China Mengniu and Cult Food go up and down completely randomly.

Pair Corralation between China Mengniu and Cult Food

Assuming the 90 days horizon China Mengniu Dairy is expected to under-perform the Cult Food. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Mengniu Dairy is 2.35 times less risky than Cult Food. The pink sheet trades about -0.32 of its potential returns per unit of risk. The Cult Food Science is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.27  in Cult Food Science on October 25, 2024 and sell it today you would earn a total of  0.12  from holding Cult Food Science or generate 3.67% return on investment over 90 days.

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

China Mengniu Dairy  vs.  Cult Food Science

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.

Cult Food Science

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cult Food Science are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cult Food is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Mengniu and Cult Food

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

The idea behind China Mengniu Dairy and Cult Food Science 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.