Correlation Between Foodlink and Optima Bank

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

By analyzing existing cross correlation between Foodlink AE and Optima bank SA, you can compare the effects of market volatilities on Foodlink and Optima Bank 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 Foodlink with a short position of Optima Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foodlink and Optima Bank.

Diversification Opportunities for Foodlink and Optima Bank

-0.27

Correlation Coefficient

Foodlink  Optima Bank

Very good diversification

The 3 months correlation between Foodlink and Optima is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Foodlink AE and Optima bank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima bank SA and Foodlink 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 Foodlink AE are associated (or correlated) with Optima Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima bank SA has no effect on the direction of Foodlink i.e., Foodlink and Optima Bank go up and down completely randomly.

Pair Corralation between Foodlink and Optima Bank

Assuming the 90 days trading horizon Foodlink AE is expected to generate 3.34 times more return on investment than Optima Bank. However, Foodlink is 3.34 times more volatile than Optima bank SA. It trades about 0.11 of its potential returns per unit of risk. Optima bank SA is currently generating about -0.04 per unit of risk. If you would invest  35.00  in Foodlink AE on September 12, 2024 and sell it today you would earn a total of  7.00  from holding Foodlink AE or generate 20.0% return on investment over 90 days.

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

Foodlink AE  vs.  Optima bank SA

Foodlink AE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foodlink AE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Foodlink sustained solid returns over the last few months and may actually be approaching a breakup point.

Optima bank SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima bank SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Optima Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Foodlink and Optima Bank

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

The idea behind Foodlink AE and Optima bank 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.