Correlation Between Mondelez International and China Mengniu

Can any of the company-specific risk be diversified away by investing in both Mondelez International and China Mengniu 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 Mondelez International and China Mengniu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mondelez International and China Mengniu Dairy, you can compare the effects of market volatilities on Mondelez International and China Mengniu 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 Mondelez International with a short position of China Mengniu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mondelez International and China Mengniu.

Diversification Opportunities for Mondelez International and China Mengniu

0.34

Correlation Coefficient

Mondelez International  China Mengniu

Weak diversification

The 3 months correlation between Mondelez and China is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Mondelez International and China Mengniu Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mengniu Dairy and Mondelez International 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 Mondelez International are associated (or correlated) with China Mengniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mengniu Dairy has no effect on the direction of Mondelez International i.e., Mondelez International and China Mengniu go up and down completely randomly.

Pair Corralation between Mondelez International and China Mengniu

Given the investment horizon of 90 days Mondelez International is expected to under-perform the China Mengniu. But the stock apears to be less risky and, when comparing its historical volatility, Mondelez International is 2.58 times less risky than China Mengniu. The stock trades about -0.25 of its potential returns per unit of risk. The China Mengniu Dairy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,200  in China Mengniu Dairy on October 27, 2024 and sell it today you would lose (202.00) from holding China Mengniu Dairy or give up 9.18% of portfolio value over 90 days.

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

Mondelez International  vs.  China Mengniu Dairy

Mondelez International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mondelez International 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 essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 latest weak performance, the Stock's fundamental 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 Mondelez International and China Mengniu

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

The idea behind Mondelez International and China Mengniu Dairy 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.