Correlation Between Chevron and Dairy Farm

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

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

Diversification Opportunities for Chevron and Dairy Farm

0.82

Correlation Coefficient

Chevron  Dairy Farm

Very poor diversification

The 3 months correlation between Chevron and Dairy is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Chevron and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and Chevron 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 Chevron are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of Chevron i.e., Chevron and Dairy Farm go up and down completely randomly.

Pair Corralation between Chevron and Dairy Farm

Assuming the 90 days trading horizon Chevron is expected to under-perform the Dairy Farm. But the stock apears to be less risky and, when comparing its historical volatility, Chevron is 1.16 times less risky than Dairy Farm. The stock trades about -0.11 of its potential returns per unit of risk. The Dairy Farm International is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  218.00  in Dairy Farm International on October 10, 2024 and sell it today you would earn a total of  0.00  from holding Dairy Farm International or generate 0.0% return on investment over 90 days.

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

Chevron  vs.  Dairy Farm International

Chevron

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Chevron may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dairy Farm International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chevron and Dairy Farm

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

The idea behind Chevron and Dairy Farm International 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.