Correlation Between Edita Food and Arab Dairy

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

By analyzing existing cross correlation between Edita Food Industries and The Arab Dairy, you can compare the effects of market volatilities on Edita Food and Arab Dairy 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 Edita Food with a short position of Arab Dairy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edita Food and Arab Dairy.

Diversification Opportunities for Edita Food and Arab Dairy

-0.38

Correlation Coefficient

Edita Food  Arab Dairy

Very good diversification

The 3 months correlation between Edita and Arab is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Edita Food Industries and The Arab Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arab Dairy and Edita Food 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 Edita Food Industries are associated (or correlated) with Arab Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arab Dairy has no effect on the direction of Edita Food i.e., Edita Food and Arab Dairy go up and down completely randomly.

Pair Corralation between Edita Food and Arab Dairy

Assuming the 90 days trading horizon Edita Food is expected to generate 9.47 times less return on investment than Arab Dairy. But when comparing it to its historical volatility, Edita Food Industries is 1.49 times less risky than Arab Dairy. It trades about 0.02 of its potential returns per unit of risk. The Arab Dairy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  230.00  in The Arab Dairy on December 5, 2024 and sell it today you would earn a total of  83.00  from holding The Arab Dairy or generate 36.09% return on investment over 90 days.

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

Edita Food Industries  vs.  The Arab Dairy

Edita Food Industries

Risk-Adjusted Performance

Very Weak

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

Arab Dairy

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Arab Dairy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Edita Food and Arab Dairy

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

The idea behind Edita Food Industries and The Arab Dairy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.