Correlation Between Dr Foods and Energy

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

By analyzing existing cross correlation between Dr Foods and Energy and Water, you can compare the effects of market volatilities on Dr Foods and 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 Dr Foods with a short position of Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dr Foods and Energy.

Diversification Opportunities for Dr Foods and Energy

0.61

Correlation Coefficient

Dr Foods  Energy

Poor diversification

The 3 months correlation between DRFS and Energy is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dr Foods and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water and Dr Foods 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 Dr Foods are associated (or correlated) with Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Dr Foods i.e., Dr Foods and Energy go up and down completely randomly.

Pair Corralation between Dr Foods and Energy

Given the investment horizon of 90 days Dr Foods is expected to generate 1.58 times more return on investment than Energy. However, Dr Foods is 1.58 times more volatile than Energy and Water. It trades about 0.4 of its potential returns per unit of risk. Energy and Water is currently generating about 0.01 per unit of risk. If you would invest  2.40  in Dr Foods on December 28, 2024 and sell it today you would earn a total of  1.59  from holding Dr Foods or generate 66.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	11.67%
Values	Daily Returns

Dr Foods  vs.  Energy and Water

Dr Foods

Risk-Adjusted Performance

Very Strong

Over the last 90 days Dr Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively abnormal technical and fundamental indicators, Dr Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Energy and Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather fragile basic indicators, Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Dr Foods and Energy

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

The idea behind Dr Foods and Energy and Water 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.