Correlation Between Davis Commodities and Lifeway Foods

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

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

Diversification Opportunities for Davis Commodities and Lifeway Foods

0.45

Correlation Coefficient

Davis Commodities  Lifeway Foods

Very weak diversification

The 3 months correlation between Davis and Lifeway is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Davis Commodities Limited and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods and Davis Commodities 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 Davis Commodities Limited are associated (or correlated) with Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Davis Commodities i.e., Davis Commodities and Lifeway Foods go up and down completely randomly.

Pair Corralation between Davis Commodities and Lifeway Foods

Given the investment horizon of 90 days Davis Commodities Limited is expected to under-perform the Lifeway Foods. In addition to that, Davis Commodities is 1.23 times more volatile than Lifeway Foods. It trades about -0.07 of its total potential returns per unit of risk. Lifeway Foods is currently generating about 0.04 per unit of volatility. If you would invest  2,330  in Lifeway Foods on December 29, 2024 and sell it today you would earn a total of  127.00  from holding Lifeway Foods or generate 5.45% return on investment over 90 days.

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

Davis Commodities Limited  vs.  Lifeway Foods

Davis Commodities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Lifeway Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Lifeway Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Davis Commodities and Lifeway Foods

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

The idea behind Davis Commodities Limited and Lifeway Foods 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .