Correlation Between Danone SA and Ajinomoto

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

By analyzing existing cross correlation between Danone SA and Ajinomoto Co ADR, you can compare the effects of market volatilities on Danone SA and Ajinomoto 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 Danone SA with a short position of Ajinomoto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danone SA and Ajinomoto.

Diversification Opportunities for Danone SA and Ajinomoto

-0.77

Correlation Coefficient

Danone SA  Ajinomoto

Pay attention - limited upside

The 3 months correlation between Danone and Ajinomoto is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Ajinomoto Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ajinomoto Co ADR and Danone SA 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 Danone SA are associated (or correlated) with Ajinomoto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ajinomoto Co ADR has no effect on the direction of Danone SA i.e., Danone SA and Ajinomoto go up and down completely randomly.

Pair Corralation between Danone SA and Ajinomoto

Assuming the 90 days horizon Danone SA is expected to generate 6.87 times less return on investment than Ajinomoto. But when comparing it to its historical volatility, Danone SA is 2.17 times less risky than Ajinomoto. It trades about 0.06 of its potential returns per unit of risk. Ajinomoto Co ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,985  in Ajinomoto Co ADR on September 18, 2024 and sell it today you would earn a total of  229.00  from holding Ajinomoto Co ADR or generate 5.75% return on investment over 90 days.

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

Danone SA  vs.  Ajinomoto Co ADR

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ajinomoto Co ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ajinomoto Co ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Ajinomoto showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Danone SA and Ajinomoto

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

The idea behind Danone SA and Ajinomoto Co ADR 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..