Correlation Between A2 Milk and Branded Legacy

Can any of the company-specific risk be diversified away by investing in both A2 Milk and Branded Legacy 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 Branded Legacy 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 Branded Legacy, you can compare the effects of market volatilities on A2 Milk and Branded Legacy 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 Branded Legacy. Check out your portfolio center. Please also check ongoing floating volatility patterns of A2 Milk and Branded Legacy.

Diversification Opportunities for A2 Milk and Branded Legacy

0.33

Correlation Coefficient

A2 Milk  Branded Legacy

Weak diversification

The 3 months correlation between ACOPY and Branded is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding The A2 Milk and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy 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 Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of A2 Milk i.e., A2 Milk and Branded Legacy go up and down completely randomly.

Pair Corralation between A2 Milk and Branded Legacy

Assuming the 90 days horizon A2 Milk is expected to generate 1.03 times less return on investment than Branded Legacy. But when comparing it to its historical volatility, The A2 Milk is 2.77 times less risky than Branded Legacy. It trades about 0.14 of its potential returns per unit of risk. Branded Legacy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.10  in Branded Legacy on December 2, 2024 and sell it today you would lose (0.02) from holding Branded Legacy or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

The A2 Milk  vs.  Branded Legacy

A2 Milk

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The A2 Milk are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, A2 Milk showed solid returns over the last few months and may actually be approaching a breakup point.

Branded Legacy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Branded Legacy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Branded Legacy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with A2 Milk and Branded Legacy

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

The idea behind The A2 Milk and Branded Legacy 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.