Correlation Between Danone SA and Associated British

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

By analyzing existing cross correlation between Danone SA and Associated British Foods, you can compare the effects of market volatilities on Danone SA and Associated British 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 Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danone SA and Associated British.

Diversification Opportunities for Danone SA and Associated British

0.7

Correlation Coefficient

Danone SA  Associated British

Poor diversification

The 3 months correlation between Danone and Associated is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Danone SA i.e., Danone SA and Associated British go up and down completely randomly.

Pair Corralation between Danone SA and Associated British

Assuming the 90 days horizon Danone SA is expected to under-perform the Associated British. But the otc stock apears to be less risky and, when comparing its historical volatility, Danone SA is 1.09 times less risky than Associated British. The otc stock trades about -0.13 of its potential returns per unit of risk. The Associated British Foods is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  2,700  in Associated British Foods on September 20, 2024 and sell it today you would lose (79.00) from holding Associated British Foods or give up 2.93% of portfolio value over 90 days.

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

Danone SA  vs.  Associated British Foods

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 latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Danone SA and Associated British

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

The idea behind Danone SA and Associated British 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.