Correlation Between Branded Legacy and Danone SA

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

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

Diversification Opportunities for Branded Legacy and Danone SA

0.61

Correlation Coefficient

Branded Legacy  Danone SA

Poor diversification

The 3 months correlation between Branded and Danone is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Branded Legacy and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and Branded Legacy 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 Branded Legacy 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 Branded Legacy i.e., Branded Legacy and Danone SA go up and down completely randomly.

Pair Corralation between Branded Legacy and Danone SA

Given the investment horizon of 90 days Branded Legacy is expected to generate 10.79 times more return on investment than Danone SA. However, Branded Legacy is 10.79 times more volatile than Danone SA. It trades about 0.07 of its potential returns per unit of risk. Danone SA is currently generating about 0.04 per unit of risk. If you would invest  0.70  in Branded Legacy on September 25, 2024 and sell it today you would lose (0.65) from holding Branded Legacy or give up 92.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.13%
Values	Daily Returns

Branded Legacy  vs.  Danone SA

Branded Legacy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Branded Legacy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 unfluctuating 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 Branded Legacy and Danone SA

The main advantage of trading using opposite Branded Legacy and Danone SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Branded Legacy 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 Branded Legacy 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.