Correlation Between Dairy Farm and HF FOODS

Can any of the company-specific risk be diversified away by investing in both Dairy Farm and HF 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 Dairy Farm and HF FOODS 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 HF FOODS GRP, you can compare the effects of market volatilities on Dairy Farm and HF 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 Dairy Farm with a short position of HF FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dairy Farm and HF FOODS.

Diversification Opportunities for Dairy Farm and HF FOODS

0.67

Correlation Coefficient

Dairy Farm  HF FOODS

Poor diversification

The 3 months correlation between Dairy and 3GX is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and HF FOODS GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HF FOODS GRP 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 HF FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HF FOODS GRP has no effect on the direction of Dairy Farm i.e., Dairy Farm and HF FOODS go up and down completely randomly.

Pair Corralation between Dairy Farm and HF FOODS

Assuming the 90 days trading horizon Dairy Farm International is expected to under-perform the HF FOODS. But the stock apears to be less risky and, when comparing its historical volatility, Dairy Farm International is 1.46 times less risky than HF FOODS. The stock trades about -0.22 of its potential returns per unit of risk. The HF FOODS GRP is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  324.00  in HF FOODS GRP on September 22, 2024 and sell it today you would lose (6.00) from holding HF FOODS GRP or give up 1.85% of portfolio value over 90 days.

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

Dairy Farm International  vs.  HF FOODS GRP

Dairy Farm International

Risk-Adjusted Performance

11 of 100

OK

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.

HF FOODS GRP

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HF FOODS GRP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HF FOODS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dairy Farm and HF FOODS

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

The idea behind Dairy Farm International and HF FOODS GRP 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.