Correlation Between Youyou Foods Co and Aofu Environmental

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Can any of the company-specific risk be diversified away by investing in both Youyou Foods Co and Aofu Environmental 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 Youyou Foods Co and Aofu Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Youyou Foods Co and Aofu Environmental Technology, you can compare the effects of market volatilities on Youyou Foods Co and Aofu Environmental 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 Youyou Foods Co with a short position of Aofu Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Youyou Foods Co and Aofu Environmental.

Diversification Opportunities for Youyou Foods Co and Aofu Environmental

0.85
  Correlation Coefficient

Very poor diversification

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

Pair Corralation between Youyou Foods Co and Aofu Environmental

Assuming the 90 days trading horizon Youyou Foods Co is expected to generate 1.59 times more return on investment than Aofu Environmental. However, Youyou Foods Co is 1.59 times more volatile than Aofu Environmental Technology. It trades about 0.13 of its potential returns per unit of risk. Aofu Environmental Technology is currently generating about 0.11 per unit of risk. If you would invest  909.00  in Youyou Foods Co on September 6, 2024 and sell it today you would earn a total of  102.00  from holding Youyou Foods Co or generate 11.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Youyou Foods Co  vs.  Aofu Environmental Technology

 Performance 
       Timeline  
Youyou Foods Co 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Youyou Foods Co are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Youyou Foods Co sustained solid returns over the last few months and may actually be approaching a breakup point.
Aofu Environmental 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Aofu Environmental Technology are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aofu Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Youyou Foods Co and Aofu Environmental Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Youyou Foods Co and Aofu Environmental

The main advantage of trading using opposite Youyou Foods Co and Aofu Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Youyou Foods Co position performs unexpectedly, Aofu Environmental 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 Aofu Environmental will offset losses from the drop in Aofu Environmental's long position.
The idea behind Youyou Foods Co and Aofu Environmental Technology 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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