Correlation Between GrainCorp and A2 Milk

Can any of the company-specific risk be diversified away by investing in both GrainCorp and A2 Milk 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 GrainCorp and A2 Milk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GrainCorp Limited and The A2 Milk, you can compare the effects of market volatilities on GrainCorp and A2 Milk 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 GrainCorp with a short position of A2 Milk. Check out your portfolio center. Please also check ongoing floating volatility patterns of GrainCorp and A2 Milk.

Diversification Opportunities for GrainCorp and A2 Milk

-0.54

Correlation Coefficient

GrainCorp  A2 Milk

Excellent diversification

The 3 months correlation between GrainCorp and ACOPY is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding GrainCorp Limited and The A2 Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A2 Milk and GrainCorp 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 GrainCorp Limited are associated (or correlated) with A2 Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A2 Milk has no effect on the direction of GrainCorp i.e., GrainCorp and A2 Milk go up and down completely randomly.

Pair Corralation between GrainCorp and A2 Milk

Assuming the 90 days horizon GrainCorp Limited is expected to under-perform the A2 Milk. In addition to that, GrainCorp is 1.46 times more volatile than The A2 Milk. It trades about -0.02 of its total potential returns per unit of risk. The A2 Milk is currently generating about 0.23 per unit of volatility. If you would invest  334.00  in The A2 Milk on December 27, 2024 and sell it today you would earn a total of  203.00  from holding The A2 Milk or generate 60.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

GrainCorp Limited  vs.  The A2 Milk

GrainCorp Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GrainCorp Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

A2 Milk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The A2 Milk are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, A2 Milk showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GrainCorp and A2 Milk

The main advantage of trading using opposite GrainCorp and A2 Milk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GrainCorp position performs unexpectedly, A2 Milk 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 A2 Milk will offset losses from the drop in A2 Milk's long position.

The idea behind GrainCorp Limited and The A2 Milk 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.