Correlation Between Danone SA and Koninklijke Philips

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

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

Diversification Opportunities for Danone SA and Koninklijke Philips

0.45

Correlation Coefficient

Danone SA  Koninklijke Philips

Very weak diversification

The 3 months correlation between Danone and Koninklijke is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips and Danone SA 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 Danone SA are associated (or correlated) with Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of Danone SA i.e., Danone SA and Koninklijke Philips go up and down completely randomly.

Pair Corralation between Danone SA and Koninklijke Philips

Assuming the 90 days horizon Danone SA is expected to generate 0.46 times more return on investment than Koninklijke Philips. However, Danone SA is 2.19 times less risky than Koninklijke Philips. It trades about 0.15 of its potential returns per unit of risk. Koninklijke Philips NV is currently generating about -0.01 per unit of risk. If you would invest  6,470  in Danone SA on November 28, 2024 and sell it today you would earn a total of  482.00  from holding Danone SA or generate 7.45% return on investment over 90 days.

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

Danone SA  vs.  Koninklijke Philips NV

Danone SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Koninklijke Philips

Risk-Adjusted Performance

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Koninklijke Philips 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 Danone SA and Koninklijke Philips

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

The idea behind Danone SA and Koninklijke Philips NV 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.