Correlation Between Muyuan Foodstuff and City Development

Can any of the company-specific risk be diversified away by investing in both Muyuan Foodstuff and City Development 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 Muyuan Foodstuff and City Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Muyuan Foodstuff Co and City Development Environment, you can compare the effects of market volatilities on Muyuan Foodstuff and City Development 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 Muyuan Foodstuff with a short position of City Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Muyuan Foodstuff and City Development.

Diversification Opportunities for Muyuan Foodstuff and City Development

0.33

Correlation Coefficient

Muyuan Foodstuff  City Development

Weak diversification

The 3 months correlation between Muyuan and City is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Muyuan Foodstuff Co and City Development Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Development Env and Muyuan Foodstuff 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 Muyuan Foodstuff Co are associated (or correlated) with City Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Development Env has no effect on the direction of Muyuan Foodstuff i.e., Muyuan Foodstuff and City Development go up and down completely randomly.

Pair Corralation between Muyuan Foodstuff and City Development

Assuming the 90 days trading horizon Muyuan Foodstuff Co is expected to under-perform the City Development. But the stock apears to be less risky and, when comparing its historical volatility, Muyuan Foodstuff Co is 1.05 times less risky than City Development. The stock trades about -0.15 of its potential returns per unit of risk. The City Development Environment is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,359  in City Development Environment on September 28, 2024 and sell it today you would lose (37.00) from holding City Development Environment or give up 2.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Muyuan Foodstuff Co  vs.  City Development Environment

Muyuan Foodstuff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Muyuan Foodstuff Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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.

City Development Env

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Development Environment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, City Development may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Muyuan Foodstuff and City Development

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

The idea behind Muyuan Foodstuff Co and City Development Environment 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.