Correlation Between DAIRY FARM and INSURANCE AUST

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

Diversification Opportunities for DAIRY FARM and INSURANCE AUST

0.74

Correlation Coefficient

DAIRY FARM  INSURANCE AUST

Poor diversification

The 3 months correlation between DAIRY and INSURANCE is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding DAIRY FARM INTL and INSURANCE AUST GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSURANCE AUST 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 INTL are associated (or correlated) with INSURANCE AUST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSURANCE AUST GRP has no effect on the direction of DAIRY FARM i.e., DAIRY FARM and INSURANCE AUST go up and down completely randomly.

Pair Corralation between DAIRY FARM and INSURANCE AUST

Assuming the 90 days trading horizon DAIRY FARM INTL is expected to under-perform the INSURANCE AUST. In addition to that, DAIRY FARM is 1.16 times more volatile than INSURANCE AUST GRP. It trades about -0.28 of its total potential returns per unit of risk. INSURANCE AUST GRP is currently generating about -0.07 per unit of volatility. If you would invest  515.00  in INSURANCE AUST GRP on October 1, 2024 and sell it today you would lose (10.00) from holding INSURANCE AUST GRP or give up 1.94% of portfolio value over 90 days.

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

DAIRY FARM INTL  vs.  INSURANCE AUST GRP

DAIRY FARM INTL

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DAIRY FARM INTL are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DAIRY FARM unveiled solid returns over the last few months and may actually be approaching a breakup point.

INSURANCE AUST GRP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INSURANCE AUST GRP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, INSURANCE AUST exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DAIRY FARM and INSURANCE AUST

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

The idea behind DAIRY FARM INTL and INSURANCE AUST 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.