Correlation Between Dairy Farm and Cheniere Energy

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

Diversification Opportunities for Dairy Farm and Cheniere Energy

0.84

Correlation Coefficient

Dairy Farm  Cheniere Energy

Very poor diversification

The 3 months correlation between Dairy and Cheniere is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Cheniere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy 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 Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy has no effect on the direction of Dairy Farm i.e., Dairy Farm and Cheniere Energy go up and down completely randomly.

Pair Corralation between Dairy Farm and Cheniere Energy

Assuming the 90 days trading horizon Dairy Farm International is expected to under-perform the Cheniere Energy. In addition to that, Dairy Farm is 1.69 times more volatile than Cheniere Energy. It trades about -0.33 of its total potential returns per unit of risk. Cheniere Energy is currently generating about -0.25 per unit of volatility. If you would invest  21,130  in Cheniere Energy on October 4, 2024 and sell it today you would lose (1,060) from holding Cheniere Energy or give up 5.02% of portfolio value over 90 days.

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

Dairy Farm International  vs.  Cheniere Energy

Dairy Farm International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dairy Farm may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cheniere Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dairy Farm and Cheniere Energy

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

The idea behind Dairy Farm International and Cheniere Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.