Correlation Between Lancaster Colony and Danone SA

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

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

Diversification Opportunities for Lancaster Colony and Danone SA

0.35

Correlation Coefficient

Lancaster Colony  Danone SA

Weak diversification

The 3 months correlation between Lancaster and Danone is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Lancaster Colony and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and Lancaster Colony 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 Lancaster Colony are associated (or correlated) with Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of Lancaster Colony i.e., Lancaster Colony and Danone SA go up and down completely randomly.

Pair Corralation between Lancaster Colony and Danone SA

Given the investment horizon of 90 days Lancaster Colony is expected to generate 10.35 times less return on investment than Danone SA. In addition to that, Lancaster Colony is 1.32 times more volatile than Danone SA. It trades about 0.01 of its total potential returns per unit of risk. Danone SA is currently generating about 0.17 per unit of volatility. If you would invest  6,679  in Danone SA on December 27, 2024 and sell it today you would earn a total of  935.00  from holding Danone SA or generate 14.0% return on investment over 90 days.

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

Lancaster Colony  vs.  Danone SA

Lancaster Colony

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lancaster Colony has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Lancaster Colony is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Danone SA

Risk-Adjusted Performance

Good

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

Pair Trading with Lancaster Colony and Danone SA

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

The idea behind Lancaster Colony and Danone 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.