Correlation Between Energy and Dr Foods

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

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

Diversification Opportunities for Energy and Dr Foods

0.07

Correlation Coefficient

Energy  Dr Foods

Significant diversification

The 3 months correlation between Energy and DRFS is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and Dr Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Foods and Energy 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 Energy and Water are associated (or correlated) with Dr Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Foods has no effect on the direction of Energy i.e., Energy and Dr Foods go up and down completely randomly.

Pair Corralation between Energy and Dr Foods

Given the investment horizon of 90 days Energy and Water is expected to under-perform the Dr Foods. But the otc stock apears to be less risky and, when comparing its historical volatility, Energy and Water is 1.54 times less risky than Dr Foods. The otc stock trades about -0.26 of its potential returns per unit of risk. The Dr Foods is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4.90  in Dr Foods on September 2, 2024 and sell it today you would earn a total of  0.10  from holding Dr Foods or generate 2.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Energy and Water  vs.  Dr Foods

Energy and Water

Risk-Adjusted Performance

0 of 100

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 inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Dr Foods

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Foods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Dr Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy and Dr Foods

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

The idea behind Energy and Water and Dr 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.