Correlation Between China Mengniu and Givaudan

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

Diversification Opportunities for China Mengniu and Givaudan

-0.35

Correlation Coefficient

China Mengniu  Givaudan

Very good diversification

The 3 months correlation between China and Givaudan is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and Givaudan SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA ADR 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 Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA ADR has no effect on the direction of China Mengniu i.e., China Mengniu and Givaudan go up and down completely randomly.

Pair Corralation between China Mengniu and Givaudan

Assuming the 90 days horizon China Mengniu Dairy is expected to generate 4.49 times more return on investment than Givaudan. However, China Mengniu is 4.49 times more volatile than Givaudan SA ADR. It trades about 0.11 of its potential returns per unit of risk. Givaudan SA ADR is currently generating about -0.21 per unit of risk. If you would invest  1,634  in China Mengniu Dairy on September 3, 2024 and sell it today you would earn a total of  510.00  from holding China Mengniu Dairy or generate 31.21% 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.  Givaudan SA ADR

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.

Givaudan SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Givaudan SA ADR 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 basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Mengniu and Givaudan

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

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