Correlation Between Bright Dairy and Dymatic Chemicals

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

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

Diversification Opportunities for Bright Dairy and Dymatic Chemicals

0.79

Correlation Coefficient

Bright Dairy  Dymatic Chemicals

Poor diversification

The 3 months correlation between Bright and Dymatic is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bright Dairy Food and Dymatic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dymatic Chemicals and Bright Dairy 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 Bright Dairy Food are associated (or correlated) with Dymatic Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dymatic Chemicals has no effect on the direction of Bright Dairy i.e., Bright Dairy and Dymatic Chemicals go up and down completely randomly.

Pair Corralation between Bright Dairy and Dymatic Chemicals

Assuming the 90 days trading horizon Bright Dairy is expected to generate 1.61 times less return on investment than Dymatic Chemicals. But when comparing it to its historical volatility, Bright Dairy Food is 1.5 times less risky than Dymatic Chemicals. It trades about 0.19 of its potential returns per unit of risk. Dymatic Chemicals is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  445.00  in Dymatic Chemicals on September 17, 2024 and sell it today you would earn a total of  226.00  from holding Dymatic Chemicals or generate 50.79% return on investment over 90 days.

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

Bright Dairy Food  vs.  Dymatic Chemicals

Bright Dairy Food

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Dairy Food are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bright Dairy sustained solid returns over the last few months and may actually be approaching a breakup point.

Dymatic Chemicals

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dymatic Chemicals are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dymatic Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bright Dairy and Dymatic Chemicals

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

The idea behind Bright Dairy Food and Dymatic Chemicals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.