Correlation Between China Mengniu and IHeartMedia

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

Diversification Opportunities for China Mengniu and IHeartMedia

0.58

Correlation Coefficient

China Mengniu  IHeartMedia

Very weak diversification

The 3 months correlation between China and IHeartMedia is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and iHeartMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iHeartMedia 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 IHeartMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iHeartMedia has no effect on the direction of China Mengniu i.e., China Mengniu and IHeartMedia go up and down completely randomly.

Pair Corralation between China Mengniu and IHeartMedia

Assuming the 90 days horizon China Mengniu Dairy is expected to generate 0.8 times more return on investment than IHeartMedia. However, China Mengniu Dairy is 1.26 times less risky than IHeartMedia. It trades about 0.02 of its potential returns per unit of risk. iHeartMedia is currently generating about -0.05 per unit of risk. If you would invest  2,256  in China Mengniu Dairy on December 1, 2024 and sell it today you would earn a total of  37.00  from holding China Mengniu Dairy or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.75%
Values	Daily Returns

China Mengniu Dairy  vs.  iHeartMedia

China Mengniu Dairy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

iHeartMedia

Risk-Adjusted Performance

Very Weak

Over the last 90 days iHeartMedia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Mengniu and IHeartMedia

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

The idea behind China Mengniu Dairy and iHeartMedia 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.