Correlation Between China Mengniu and Qed Connect

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

Diversification Opportunities for China Mengniu and Qed Connect

-0.24

Correlation Coefficient

China Mengniu  Qed Connect

Very good diversification

The 3 months correlation between China and Qed is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding China Mengniu Dairy and Qed Connect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qed Connect 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 Qed Connect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qed Connect has no effect on the direction of China Mengniu i.e., China Mengniu and Qed Connect go up and down completely randomly.

Pair Corralation between China Mengniu and Qed Connect

Assuming the 90 days horizon China Mengniu Dairy is expected to generate 0.42 times more return on investment than Qed Connect. However, China Mengniu Dairy is 2.38 times less risky than Qed Connect. It trades about 0.12 of its potential returns per unit of risk. Qed Connect is currently generating about -0.02 per unit of risk. If you would invest  1,593  in China Mengniu Dairy on September 12, 2024 and sell it today you would earn a total of  622.00  from holding China Mengniu Dairy or generate 39.05% 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.  Qed Connect

China Mengniu Dairy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 9 (%) 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.

Qed Connect

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Qed Connect has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with China Mengniu and Qed Connect

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

The idea behind China Mengniu Dairy and Qed Connect 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.