Correlation Between CSL and Pure Foods

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

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

Diversification Opportunities for CSL and Pure Foods

-0.29

Correlation Coefficient

CSL  Pure Foods

Very good diversification

The 3 months correlation between CSL and Pure is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding CSL and Pure Foods Tasmania in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pure Foods Tasmania and CSL 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 CSL are associated (or correlated) with Pure Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pure Foods Tasmania has no effect on the direction of CSL i.e., CSL and Pure Foods go up and down completely randomly.

Pair Corralation between CSL and Pure Foods

Assuming the 90 days trading horizon CSL is expected to generate 0.17 times more return on investment than Pure Foods. However, CSL is 5.92 times less risky than Pure Foods. It trades about -0.01 of its potential returns per unit of risk. Pure Foods Tasmania is currently generating about -0.03 per unit of risk. If you would invest  29,363  in CSL on October 23, 2024 and sell it today you would lose (1,906) from holding CSL or give up 6.49% of portfolio value over 90 days.

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

CSL  vs.  Pure Foods Tasmania

CSL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, CSL is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pure Foods Tasmania

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pure Foods Tasmania has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Pure Foods 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 CSL and Pure Foods

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

The idea behind CSL and Pure Foods Tasmania 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.