Correlation Between Dairy Farm and Toromont Industries

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

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

Diversification Opportunities for Dairy Farm and Toromont Industries

0.09

Correlation Coefficient

Dairy Farm  Toromont Industries

Significant diversification

The 3 months correlation between Dairy and Toromont is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Dairy Farm 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 Dairy Farm International are associated (or correlated) with Toromont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toromont Industries has no effect on the direction of Dairy Farm i.e., Dairy Farm and Toromont Industries go up and down completely randomly.

Pair Corralation between Dairy Farm and Toromont Industries

Assuming the 90 days trading horizon Dairy Farm International is expected to generate 1.81 times more return on investment than Toromont Industries. However, Dairy Farm is 1.81 times more volatile than Toromont Industries. It trades about 0.0 of its potential returns per unit of risk. Toromont Industries is currently generating about -0.01 per unit of risk. If you would invest  211.00  in Dairy Farm International on December 22, 2024 and sell it today you would lose (3.00) from holding Dairy Farm International or give up 1.42% of portfolio value over 90 days.

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

Dairy Farm International  vs.  Toromont Industries

Dairy Farm International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dairy Farm International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Dairy Farm is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Toromont Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toromont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Toromont Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dairy Farm and Toromont Industries

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

The idea behind Dairy Farm International and Toromont Industries 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.