Correlation Between National Beverage and Dairy Farm

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

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

Diversification Opportunities for National Beverage and Dairy Farm

0.79

Correlation Coefficient

National Beverage  Dairy Farm

Poor diversification

The 3 months correlation between National and Dairy is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp 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 National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and Dairy Farm go up and down completely randomly.

Pair Corralation between National Beverage and Dairy Farm

Assuming the 90 days horizon National Beverage is expected to generate 3.37 times less return on investment than Dairy Farm. But when comparing it to its historical volatility, National Beverage Corp is 2.47 times less risky than Dairy Farm. It trades about 0.11 of its potential returns per unit of risk. Dairy Farm International is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  153.00  in Dairy Farm International on September 15, 2024 and sell it today you would earn a total of  63.00  from holding Dairy Farm International or generate 41.18% return on investment over 90 days.

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

National Beverage Corp  vs.  Dairy Farm International

National Beverage Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dairy Farm International

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and Dairy Farm

The main advantage of trading using opposite National Beverage and Dairy Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.