Correlation Between Associated British and Danone SA

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

By analyzing existing cross correlation between Associated British Foods and Danone SA, you can compare the effects of market volatilities on Associated British 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 Associated British with a short position of Danone SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Danone SA.

Diversification Opportunities for Associated British and Danone SA

0.7

Correlation Coefficient

Associated British  Danone SA

Poor diversification

The 3 months correlation between Associated and Danone is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and Danone SA go up and down completely randomly.

Pair Corralation between Associated British and Danone SA

Assuming the 90 days horizon Associated British Foods is expected to generate 0.78 times more return on investment than Danone SA. However, Associated British Foods is 1.28 times less risky than Danone SA. It trades about 0.05 of its potential returns per unit of risk. Danone SA is currently generating about 0.04 per unit of risk. If you would invest  1,792  in Associated British Foods on September 20, 2024 and sell it today you would earn a total of  829.00  from holding Associated British Foods or generate 46.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.11%
Values	Daily Returns

Associated British Foods  vs.  Danone SA

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Associated British and Danone SA

The main advantage of trading using opposite Associated British and Danone SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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 Associated British Foods 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.