Correlation Between International Agricultural and Arab Dairy

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

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

Diversification Opportunities for International Agricultural and Arab Dairy

0.83

Correlation Coefficient

International Agricultural  Arab Dairy

Very poor diversification

The 3 months correlation between International and Arab is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding International Agricultural Pro and The Arab Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arab Dairy and International Agricultural 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 International Agricultural Products 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 International Agricultural i.e., International Agricultural and Arab Dairy go up and down completely randomly.

Pair Corralation between International Agricultural and Arab Dairy

Assuming the 90 days trading horizon International Agricultural Products is expected to generate 0.67 times more return on investment than Arab Dairy. However, International Agricultural Products is 1.48 times less risky than Arab Dairy. It trades about 0.22 of its potential returns per unit of risk. The Arab Dairy is currently generating about 0.13 per unit of risk. If you would invest  1,539  in International Agricultural Products on September 16, 2024 and sell it today you would earn a total of  301.00  from holding International Agricultural Products or generate 19.56% return on investment over 90 days.

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

International Agricultural Pro  vs.  The Arab Dairy

International Agricultural

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Agricultural Products are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, International Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Arab Dairy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Arab Dairy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Arab Dairy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Agricultural and Arab Dairy

The main advantage of trading using opposite International Agricultural and Arab Dairy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Agricultural 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 International Agricultural Products 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.