Correlation Between Main Street and Dairy Farm

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

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

Diversification Opportunities for Main Street and Dairy Farm

-0.21

Correlation Coefficient

Main Street  Dairy Farm

Very good diversification

The 3 months correlation between Main and Dairy is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and Main Street 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 Main Street Capital are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of Main Street i.e., Main Street and Dairy Farm go up and down completely randomly.

Pair Corralation between Main Street and Dairy Farm

If you would invest  6,059  in Main Street Capital on November 19, 2024 and sell it today you would earn a total of  88.00  from holding Main Street Capital or generate 1.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Main Street Capital  vs.  Dairy Farm International

Main Street Capital

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street displayed solid returns over the last few months and may actually be approaching a breakup point.

Dairy Farm International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Dairy Farm is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Main Street and Dairy Farm

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

The idea behind Main Street Capital and Dairy Farm International 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.