Correlation Between Darling Ingredients and Baozun

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

By analyzing existing cross correlation between Darling Ingredients and Baozun Inc, you can compare the effects of market volatilities on Darling Ingredients and Baozun 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 Darling Ingredients with a short position of Baozun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darling Ingredients and Baozun.

Diversification Opportunities for Darling Ingredients and Baozun

0.17

Correlation Coefficient

Darling Ingredients  Baozun

Average diversification

The 3 months correlation between Darling and Baozun is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Darling Ingredients and Baozun Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baozun Inc and Darling Ingredients 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 Darling Ingredients are associated (or correlated) with Baozun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baozun Inc has no effect on the direction of Darling Ingredients i.e., Darling Ingredients and Baozun go up and down completely randomly.

Pair Corralation between Darling Ingredients and Baozun

Considering the 90-day investment horizon Darling Ingredients is expected to under-perform the Baozun. But the stock apears to be less risky and, when comparing its historical volatility, Darling Ingredients is 1.26 times less risky than Baozun. The stock trades about -0.06 of its potential returns per unit of risk. The Baozun Inc is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  229.00  in Baozun Inc on January 25, 2024 and sell it today you would earn a total of  37.00  from holding Baozun Inc or generate 16.16% return on investment over 90 days.

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

Darling Ingredients  vs.  Baozun Inc

Darling Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darling Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Baozun Inc

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baozun Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Baozun displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darling Ingredients and Baozun

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

The idea behind Darling Ingredients and Baozun Inc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.