Correlation Between China Mengniu and Gourmet Provisions

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

Diversification Opportunities for China Mengniu and Gourmet Provisions

-0.53

Correlation Coefficient

China Mengniu  Gourmet Provisions

Excellent diversification

The 3 months correlation between China and Gourmet is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and Gourmet Provisions Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gourmet Provisions 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 Gourmet Provisions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gourmet Provisions has no effect on the direction of China Mengniu i.e., China Mengniu and Gourmet Provisions go up and down completely randomly.

Pair Corralation between China Mengniu and Gourmet Provisions

Assuming the 90 days horizon China Mengniu is expected to generate 8.43 times less return on investment than Gourmet Provisions. But when comparing it to its historical volatility, China Mengniu Dairy is 7.28 times less risky than Gourmet Provisions. It trades about 0.11 of its potential returns per unit of risk. Gourmet Provisions International is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Gourmet Provisions International on September 2, 2024 and sell it today you would lose (0.01) from holding Gourmet Provisions International or give up 50.0% of portfolio value over 90 days.

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

China Mengniu Dairy  vs.  Gourmet Provisions Internation

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.

Gourmet Provisions

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gourmet Provisions International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Gourmet Provisions reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Mengniu and Gourmet Provisions

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

The idea behind China Mengniu Dairy and Gourmet Provisions International 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.