Correlation Between Dairy Farm and Carrefour

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

Diversification Opportunities for Dairy Farm and Carrefour

-0.66

Correlation Coefficient

Dairy Farm  Carrefour

Excellent diversification

The 3 months correlation between Dairy and Carrefour is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Carrefour SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carrefour SA 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 Carrefour. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carrefour SA has no effect on the direction of Dairy Farm i.e., Dairy Farm and Carrefour go up and down completely randomly.

Pair Corralation between Dairy Farm and Carrefour

Assuming the 90 days horizon Dairy Farm International is expected to generate 0.77 times more return on investment than Carrefour. However, Dairy Farm International is 1.31 times less risky than Carrefour. It trades about 0.17 of its potential returns per unit of risk. Carrefour SA is currently generating about 0.01 per unit of risk. If you would invest  185.00  in Dairy Farm International on September 3, 2024 and sell it today you would earn a total of  33.00  from holding Dairy Farm International or generate 17.84% 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.  Carrefour SA

Dairy Farm International

Risk-Adjusted Performance

13 of 100

Good

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

Carrefour SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carrefour SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carrefour is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dairy Farm and Carrefour

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

The idea behind Dairy Farm International and Carrefour SA 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.