Correlation Between BJs Wholesale and Dairy Farm

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

By analyzing existing cross correlation between BJs Wholesale Club and Dairy Farm International, you can compare the effects of market volatilities on BJs Wholesale and Dairy Farm 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 BJs Wholesale with a short position of Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and Dairy Farm.

Diversification Opportunities for BJs Wholesale and Dairy Farm

0.71

Correlation Coefficient

BJs Wholesale  Dairy Farm

Poor diversification

The 3 months correlation between BJs and Dairy is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and Dairy Farm go up and down completely randomly.

Pair Corralation between BJs Wholesale and Dairy Farm

Assuming the 90 days horizon BJs Wholesale Club is expected to under-perform the Dairy Farm. But the stock apears to be less risky and, when comparing its historical volatility, BJs Wholesale Club is 1.33 times less risky than Dairy Farm. The stock trades about -0.24 of its potential returns per unit of risk. The Dairy Farm International is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  218.00  in Dairy Farm International on October 7, 2024 and sell it today you would lose (6.00) from holding Dairy Farm International or give up 2.75% of portfolio value over 90 days.

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

BJs Wholesale Club  vs.  Dairy Farm International

BJs Wholesale Club

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, BJs Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dairy Farm International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Dairy Farm may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BJs Wholesale and Dairy Farm

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

The idea behind BJs Wholesale Club and Dairy Farm International 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.