Correlation Between North American and Dairy Farm
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and Dairy Farm into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and Dairy Farm International, you can compare the effects of market volatilities on North American 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 North American with a short position of Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Dairy Farm.
Diversification Opportunities for North American and Dairy Farm
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between North and Dairy is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and Dairy Farm go up and down completely randomly.
Pair Corralation between North American and Dairy Farm
Assuming the 90 days horizon North American Construction is expected to under-perform the Dairy Farm. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 1.68 times less risky than Dairy Farm. The stock trades about -0.38 of its potential returns per unit of risk. The Dairy Farm International is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest 216.00 in Dairy Farm International on December 5, 2024 and sell it today you would lose (19.00) from holding Dairy Farm International or give up 8.8% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
North American Construction vs. Dairy Farm International
Performance |
Timeline |
North American Const |
Dairy Farm International |
North American and Dairy Farm Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with North American and Dairy Farm
The main advantage of trading using opposite North American and Dairy Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.North American vs. Japan Medical Dynamic | North American vs. Fast Retailing Co | North American vs. H2O Retailing | North American vs. Fuji Media Holdings |
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Check out your portfolio center.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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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