Correlation Between Ligao Foods and Qingdao Foods

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

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

Diversification Opportunities for Ligao Foods and Qingdao Foods

0.85

Correlation Coefficient

Ligao Foods  Qingdao Foods

Very poor diversification

The 3 months correlation between Ligao and Qingdao is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ligao Foods CoLtd and Qingdao Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Foods and Ligao Foods 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 Ligao Foods CoLtd are associated (or correlated) with Qingdao Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Foods has no effect on the direction of Ligao Foods i.e., Ligao Foods and Qingdao Foods go up and down completely randomly.

Pair Corralation between Ligao Foods and Qingdao Foods

Assuming the 90 days trading horizon Ligao Foods CoLtd is expected to generate 1.38 times more return on investment than Qingdao Foods. However, Ligao Foods is 1.38 times more volatile than Qingdao Foods Co. It trades about 0.2 of its potential returns per unit of risk. Qingdao Foods Co is currently generating about 0.16 per unit of risk. If you would invest  2,331  in Ligao Foods CoLtd on August 31, 2024 and sell it today you would earn a total of  1,255  from holding Ligao Foods CoLtd or generate 53.84% return on investment over 90 days.

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

Ligao Foods CoLtd  vs.  Qingdao Foods Co

Ligao Foods CoLtd

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 15 (%) 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.

Qingdao Foods

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Qingdao Foods Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qingdao Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ligao Foods and Qingdao Foods

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

The idea behind Ligao Foods CoLtd and Qingdao Foods Co 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.