Correlation Between Australian Dairy and Odyssey Energy

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

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

Diversification Opportunities for Australian Dairy and Odyssey Energy

-0.44

Correlation Coefficient

Australian Dairy  Odyssey Energy

Very good diversification

The 3 months correlation between Australian and Odyssey is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Australian Dairy Farms and Odyssey Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odyssey Energy and Australian 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 Australian Dairy Farms are associated (or correlated) with Odyssey Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odyssey Energy has no effect on the direction of Australian Dairy i.e., Australian Dairy and Odyssey Energy go up and down completely randomly.

Pair Corralation between Australian Dairy and Odyssey Energy

Assuming the 90 days trading horizon Australian Dairy Farms is expected to generate 0.83 times more return on investment than Odyssey Energy. However, Australian Dairy Farms is 1.2 times less risky than Odyssey Energy. It trades about 0.19 of its potential returns per unit of risk. Odyssey Energy is currently generating about 0.03 per unit of risk. If you would invest  1.80  in Australian Dairy Farms on August 31, 2024 and sell it today you would earn a total of  1.30  from holding Australian Dairy Farms or generate 72.22% return on investment over 90 days.

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

Australian Dairy Farms  vs.  Odyssey Energy

Australian Dairy Farms

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Dairy Farms are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Australian Dairy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Odyssey Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Odyssey Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Odyssey Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Australian Dairy and Odyssey Energy

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

The idea behind Australian Dairy Farms and Odyssey Energy 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.