Correlation Between Dairy Farm and Brown Brown

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

Diversification Opportunities for Dairy Farm and Brown Brown

-0.65

Correlation Coefficient

Dairy Farm  Brown Brown

Excellent diversification

The 3 months correlation between Dairy and Brown is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Brown Brown in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Brown 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 Brown Brown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Brown has no effect on the direction of Dairy Farm i.e., Dairy Farm and Brown Brown go up and down completely randomly.

Pair Corralation between Dairy Farm and Brown Brown

Assuming the 90 days trading horizon Dairy Farm International is expected to under-perform the Brown Brown. In addition to that, Dairy Farm is 2.58 times more volatile than Brown Brown. It trades about -0.04 of its total potential returns per unit of risk. Brown Brown is currently generating about 0.2 per unit of volatility. If you would invest  9,808  in Brown Brown on December 21, 2024 and sell it today you would earn a total of  1,222  from holding Brown Brown or generate 12.46% return on investment over 90 days.

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

Dairy Farm International  vs.  Brown Brown

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Brown Brown

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brown Brown are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Brown Brown unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dairy Farm and Brown Brown

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

The idea behind Dairy Farm International and Brown Brown 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.