Correlation Between A2 Milk and Danone SA

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

Diversification Opportunities for A2 Milk and Danone SA

0.92

Correlation Coefficient

A2 Milk  Danone SA

Almost no diversification

The 3 months correlation between ACOPY and Danone is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding The A2 Milk and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA 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 Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of A2 Milk i.e., A2 Milk and Danone SA go up and down completely randomly.

Pair Corralation between A2 Milk and Danone SA

Assuming the 90 days horizon The A2 Milk is expected to generate 2.71 times more return on investment than Danone SA. However, A2 Milk is 2.71 times more volatile than Danone SA. It trades about 0.23 of its potential returns per unit of risk. Danone SA is currently generating about 0.17 per unit of risk. If you would invest  334.00  in The A2 Milk on December 26, 2024 and sell it today you would earn a total of  203.00  from holding The A2 Milk or generate 60.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

The A2 Milk  vs.  Danone SA

A2 Milk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The A2 Milk are ranked lower than 17 (%) 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.

Danone SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Danone SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with A2 Milk and Danone SA

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

The idea behind The A2 Milk and Danone SA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.