Correlation Between Vulcan Energy and China Mengniu

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

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

Diversification Opportunities for Vulcan Energy and China Mengniu

-0.07

Correlation Coefficient

Vulcan Energy  China Mengniu

Good diversification

The 3 months correlation between Vulcan and China is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Energy Resources 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 Vulcan Energy 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 Vulcan Energy Resources 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 Vulcan Energy i.e., Vulcan Energy and China Mengniu go up and down completely randomly.

Pair Corralation between Vulcan Energy and China Mengniu

Assuming the 90 days horizon Vulcan Energy Resources is expected to generate 2.05 times more return on investment than China Mengniu. However, Vulcan Energy is 2.05 times more volatile than China Mengniu Dairy. It trades about 0.08 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about 0.06 per unit of risk. If you would invest  239.00  in Vulcan Energy Resources on September 25, 2024 and sell it today you would earn a total of  121.00  from holding Vulcan Energy Resources or generate 50.63% return on investment over 90 days.

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

Vulcan Energy Resources  vs.  China Mengniu Dairy

Vulcan Energy Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Vulcan Energy reported solid returns over the last few months and may actually be approaching a breakup point.

China Mengniu Dairy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vulcan Energy and China Mengniu

The main advantage of trading using opposite Vulcan Energy and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Energy 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 Vulcan Energy Resources 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.