Correlation Between Qijing Machinery and Ligao Foods

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

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

Diversification Opportunities for Qijing Machinery and Ligao Foods

0.93

Correlation Coefficient

Qijing Machinery  Ligao Foods

Almost no diversification

The 3 months correlation between Qijing and Ligao is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Qijing Machinery 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 Qijing Machinery 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 Qijing Machinery 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 Qijing Machinery i.e., Qijing Machinery and Ligao Foods go up and down completely randomly.

Pair Corralation between Qijing Machinery and Ligao Foods

Assuming the 90 days trading horizon Qijing Machinery is expected to generate 1.66 times less return on investment than Ligao Foods. But when comparing it to its historical volatility, Qijing Machinery is 1.47 times less risky than Ligao Foods. It trades about 0.19 of its potential returns per unit of risk. Ligao Foods CoLtd is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,451  in Ligao Foods CoLtd on September 5, 2024 and sell it today you would earn a total of  1,529  from holding Ligao Foods CoLtd or generate 62.38% return on investment over 90 days.

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

Qijing Machinery  vs.  Ligao Foods CoLtd

Qijing Machinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Qijing Machinery are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qijing Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Ligao Foods CoLtd

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 16 (%) 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 Qijing Machinery and Ligao Foods

The main advantage of trading using opposite Qijing Machinery and Ligao Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qijing Machinery 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 Qijing Machinery 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.