Correlation Between Australian Dairy and Regal Investment

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

Diversification Opportunities for Australian Dairy and Regal Investment

0.16

Correlation Coefficient

Australian Dairy  Regal Investment

Average diversification

The 3 months correlation between Australian and Regal is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Australian Dairy Farms and Regal Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regal Investment 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 Regal Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regal Investment has no effect on the direction of Australian Dairy i.e., Australian Dairy and Regal Investment go up and down completely randomly.

Pair Corralation between Australian Dairy and Regal Investment

Assuming the 90 days trading horizon Australian Dairy Farms is expected to generate 6.55 times more return on investment than Regal Investment. However, Australian Dairy is 6.55 times more volatile than Regal Investment. It trades about -0.03 of its potential returns per unit of risk. Regal Investment is currently generating about -0.37 per unit of risk. If you would invest  5.70  in Australian Dairy Farms on December 10, 2024 and sell it today you would lose (0.50) from holding Australian Dairy Farms or give up 8.77% of portfolio value over 90 days.

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

Australian Dairy Farms  vs.  Regal Investment

Australian Dairy Farms

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Dairy Farms are ranked lower than 7 (%) 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.

Regal Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regal Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Regal Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Australian Dairy and Regal Investment

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

The idea behind Australian Dairy Farms and Regal Investment 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.