Correlation Between Dairy Farm and DR Horton

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

Diversification Opportunities for Dairy Farm and DR Horton

-0.18

Correlation Coefficient

Dairy Farm  DR Horton

Good diversification

The 3 months correlation between Dairy and HO2 is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Dairy Farm i.e., Dairy Farm and DR Horton go up and down completely randomly.

Pair Corralation between Dairy Farm and DR Horton

Assuming the 90 days trading horizon Dairy Farm International is expected to under-perform the DR Horton. But the stock apears to be less risky and, when comparing its historical volatility, Dairy Farm International is 1.22 times less risky than DR Horton. The stock trades about -0.12 of its potential returns per unit of risk. The DR Horton is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,354  in DR Horton on October 24, 2024 and sell it today you would earn a total of  854.00  from holding DR Horton or generate 6.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Dairy Farm International  vs.  DR Horton

Dairy Farm International

Risk-Adjusted Performance

0 of 100

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.

DR Horton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Horton 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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Dairy Farm and DR Horton

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

The idea behind Dairy Farm International and DR Horton 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.