Correlation Between Central Garden and Danone SA

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

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

Diversification Opportunities for Central Garden and Danone SA

-0.58

Correlation Coefficient

Central Garden  Danone SA

Excellent diversification

The 3 months correlation between Central and Danone is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and Central Garden 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 Central Garden Pet 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 Central Garden i.e., Central Garden and Danone SA go up and down completely randomly.

Pair Corralation between Central Garden and Danone SA

Assuming the 90 days horizon Central Garden is expected to generate 1.78 times less return on investment than Danone SA. But when comparing it to its historical volatility, Central Garden Pet is 1.14 times less risky than Danone SA. It trades about 0.03 of its potential returns per unit of risk. Danone SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,937  in Danone SA on September 20, 2024 and sell it today you would earn a total of  1,948  from holding Danone SA or generate 39.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.93%
Values	Daily Returns

Central Garden Pet  vs.  Danone SA

Central Garden Pet

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 nearly stable basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Central Garden and Danone SA

The main advantage of trading using opposite Central Garden and Danone SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Garden 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 Central Garden Pet 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.