Correlation Between DAIRY FARM and COMPASS MINERALS

Can any of the company-specific risk be diversified away by investing in both DAIRY FARM and COMPASS MINERALS 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 COMPASS MINERALS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DAIRY FARM INTL and COMPASS MINERALS, you can compare the effects of market volatilities on DAIRY FARM and COMPASS MINERALS 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 COMPASS MINERALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of DAIRY FARM and COMPASS MINERALS.

Diversification Opportunities for DAIRY FARM and COMPASS MINERALS

0.68

Correlation Coefficient

DAIRY FARM  COMPASS MINERALS

Poor diversification

The 3 months correlation between DAIRY and COMPASS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding DAIRY FARM INTL and COMPASS MINERALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS MINERALS 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 INTL are associated (or correlated) with COMPASS MINERALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS MINERALS has no effect on the direction of DAIRY FARM i.e., DAIRY FARM and COMPASS MINERALS go up and down completely randomly.

Pair Corralation between DAIRY FARM and COMPASS MINERALS

Assuming the 90 days trading horizon DAIRY FARM INTL is expected to generate 0.27 times more return on investment than COMPASS MINERALS. However, DAIRY FARM INTL is 3.73 times less risky than COMPASS MINERALS. It trades about -0.04 of its potential returns per unit of risk. COMPASS MINERALS is currently generating about -0.18 per unit of risk. If you would invest  222.00  in DAIRY FARM INTL on October 9, 2024 and sell it today you would lose (2.00) from holding DAIRY FARM INTL or give up 0.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.12%
Values	Daily Returns

DAIRY FARM INTL  vs.  COMPASS MINERALS

DAIRY FARM INTL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DAIRY FARM INTL are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, DAIRY FARM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

COMPASS MINERALS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS MINERALS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, COMPASS MINERALS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with DAIRY FARM and COMPASS MINERALS

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

The idea behind DAIRY FARM INTL and COMPASS MINERALS 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.