Correlation Between Guangzhou Tinci and Ligao Foods

Can any of the company-specific risk be diversified away by investing in both Guangzhou Tinci and Ligao Foods 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 Guangzhou Tinci and Ligao Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangzhou Tinci Materials and Ligao Foods CoLtd, you can compare the effects of market volatilities on Guangzhou Tinci and Ligao Foods 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 Guangzhou Tinci with a short position of Ligao Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Tinci and Ligao Foods.

Diversification Opportunities for Guangzhou Tinci and Ligao Foods

0.82

Correlation Coefficient

Guangzhou Tinci  Ligao Foods

Very poor diversification

The 3 months correlation between Guangzhou and Ligao is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Tinci Materials and Ligao Foods CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ligao Foods CoLtd and Guangzhou Tinci 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 Guangzhou Tinci Materials are associated (or correlated) with Ligao Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ligao Foods CoLtd has no effect on the direction of Guangzhou Tinci i.e., Guangzhou Tinci and Ligao Foods go up and down completely randomly.

Pair Corralation between Guangzhou Tinci and Ligao Foods

Assuming the 90 days trading horizon Guangzhou Tinci Materials is expected to generate 1.12 times more return on investment than Ligao Foods. However, Guangzhou Tinci is 1.12 times more volatile than Ligao Foods CoLtd. It trades about 0.22 of its potential returns per unit of risk. Ligao Foods CoLtd is currently generating about 0.23 per unit of risk. If you would invest  1,395  in Guangzhou Tinci Materials on August 31, 2024 and sell it today you would earn a total of  1,040  from holding Guangzhou Tinci Materials or generate 74.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Guangzhou Tinci Materials  vs.  Ligao Foods CoLtd

Guangzhou Tinci Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Tinci Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Tinci sustained solid returns over the last few months and may actually be approaching a breakup point.

Ligao Foods CoLtd

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ligao Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Tinci and Ligao Foods

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

The idea behind Guangzhou Tinci Materials and Ligao Foods CoLtd 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.