Correlation Between TRAVEL LEISURE and Dairy Farm

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and Dairy Farm International, you can compare the effects of market volatilities on TRAVEL LEISURE 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 TRAVEL LEISURE with a short position of Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL LEISURE and Dairy Farm.

Diversification Opportunities for TRAVEL LEISURE and Dairy Farm

0.2

Correlation Coefficient

TRAVEL LEISURE  Dairy Farm

Modest diversification

The 3 months correlation between TRAVEL and Dairy is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 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 TRAVEL LEISURE 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 TRAVEL LEISURE DL 01 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 TRAVEL LEISURE i.e., TRAVEL LEISURE and Dairy Farm go up and down completely randomly.

Pair Corralation between TRAVEL LEISURE and Dairy Farm

Assuming the 90 days trading horizon TRAVEL LEISURE DL 01 is expected to under-perform the Dairy Farm. But the stock apears to be less risky and, when comparing its historical volatility, TRAVEL LEISURE DL 01 is 1.37 times less risky than Dairy Farm. The stock trades about -0.07 of its potential returns per unit of risk. The Dairy Farm International is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  218.00  in Dairy Farm International on December 21, 2024 and sell it today you would lose (16.00) from holding Dairy Farm International or give up 7.34% of portfolio value over 90 days.

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

TRAVEL LEISURE DL 01  vs.  Dairy Farm International

TRAVEL LEISURE DL

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRAVEL LEISURE DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Dairy Farm International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dairy Farm International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic 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 TRAVEL LEISURE and Dairy Farm

The main advantage of trading using opposite TRAVEL LEISURE and Dairy Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAVEL LEISURE 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 TRAVEL LEISURE DL 01 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.