Correlation Between General Mills and China Mengniu

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

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

Diversification Opportunities for General Mills and China Mengniu

-0.31

Correlation Coefficient

General Mills  China Mengniu

Very good diversification

The 3 months correlation between General and China is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding General Mills 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 General Mills 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 General Mills 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 General Mills i.e., General Mills and China Mengniu go up and down completely randomly.

Pair Corralation between General Mills and China Mengniu

Considering the 90-day investment horizon General Mills is expected to under-perform the China Mengniu. But the stock apears to be less risky and, when comparing its historical volatility, General Mills is 3.19 times less risky than China Mengniu. The stock trades about -0.34 of its potential returns per unit of risk. The China Mengniu Dairy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,034  in China Mengniu Dairy on August 20, 2024 and sell it today you would earn a total of  131.00  from holding China Mengniu Dairy or generate 6.44% return on investment over 90 days.

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

General Mills  vs.  China Mengniu Dairy

General Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Mills has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

China Mengniu Dairy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Mengniu Dairy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, China Mengniu showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Mills and China Mengniu

The main advantage of trading using opposite General Mills and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Mills 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 General Mills 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.