Correlation Between Dairy Farm and Data#3

Can any of the company-specific risk be diversified away by investing in both Dairy Farm and Data#3 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 Data#3 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 Data3 Limited, you can compare the effects of market volatilities on Dairy Farm and Data#3 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 Data#3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dairy Farm and Data#3.

Diversification Opportunities for Dairy Farm and Data#3

0.04

Correlation Coefficient

Dairy Farm  Data#3

Significant diversification

The 3 months correlation between Dairy and Data#3 is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Data3 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data3 Limited 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 Data#3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data3 Limited has no effect on the direction of Dairy Farm i.e., Dairy Farm and Data#3 go up and down completely randomly.

Pair Corralation between Dairy Farm and Data#3

Assuming the 90 days trading horizon Dairy Farm International is expected to generate 0.72 times more return on investment than Data#3. However, Dairy Farm International is 1.39 times less risky than Data#3. It trades about -0.22 of its potential returns per unit of risk. Data3 Limited is currently generating about -0.36 per unit of risk. If you would invest  238.00  in Dairy Farm International on September 22, 2024 and sell it today you would lose (22.00) from holding Dairy Farm International or give up 9.24% 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.  Data3 Limited

Dairy Farm International

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

Data3 Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Data3 Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Dairy Farm and Data#3

The main advantage of trading using opposite Dairy Farm and Data#3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dairy Farm position performs unexpectedly, Data#3 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 Data#3 will offset losses from the drop in Data#3's long position.

The idea behind Dairy Farm International and Data3 Limited 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.