Correlation Between A2 Milk and BAB

Can any of the company-specific risk be diversified away by investing in both A2 Milk and BAB 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 A2 Milk and BAB into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The a2 Milk and BAB Inc, you can compare the effects of market volatilities on A2 Milk and BAB 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 A2 Milk with a short position of BAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of A2 Milk and BAB.

Diversification Opportunities for A2 Milk and BAB

-0.37

Correlation Coefficient

A2 Milk  BAB

Very good diversification

The 3 months correlation between ACOPF and BAB is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding The a2 Milk and BAB Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAB Inc and A2 Milk 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 The a2 Milk are associated (or correlated) with BAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAB Inc has no effect on the direction of A2 Milk i.e., A2 Milk and BAB go up and down completely randomly.

Pair Corralation between A2 Milk and BAB

Assuming the 90 days horizon A2 Milk is expected to generate 1.55 times less return on investment than BAB. In addition to that, A2 Milk is 1.63 times more volatile than BAB Inc. It trades about 0.03 of its total potential returns per unit of risk. BAB Inc is currently generating about 0.06 per unit of volatility. If you would invest  77.00  in BAB Inc on September 12, 2024 and sell it today you would earn a total of  8.00  from holding BAB Inc or generate 10.39% return on investment over 90 days.

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

The a2 Milk  vs.  BAB Inc

a2 Milk

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The a2 Milk are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, A2 Milk may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BAB Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BAB Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, BAB sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with A2 Milk and BAB

The main advantage of trading using opposite A2 Milk and BAB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A2 Milk position performs unexpectedly, BAB 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 BAB will offset losses from the drop in BAB's long position.

The idea behind The a2 Milk and BAB 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.