Correlation Between Danone SA and Societe LDC

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

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

Diversification Opportunities for Danone SA and Societe LDC

-0.15

Correlation Coefficient

Danone SA  Societe LDC

Good diversification

The 3 months correlation between Danone and Societe is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Societe LDC SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Societe LDC SA and Danone SA 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 Danone SA are associated (or correlated) with Societe LDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Societe LDC SA has no effect on the direction of Danone SA i.e., Danone SA and Societe LDC go up and down completely randomly.

Pair Corralation between Danone SA and Societe LDC

Assuming the 90 days horizon Danone SA is expected to generate 0.61 times more return on investment than Societe LDC. However, Danone SA is 1.65 times less risky than Societe LDC. It trades about 0.02 of its potential returns per unit of risk. Societe LDC SA is currently generating about -0.12 per unit of risk. If you would invest  6,442  in Danone SA on September 5, 2024 and sell it today you would earn a total of  38.00  from holding Danone SA or generate 0.59% return on investment over 90 days.

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

Danone SA  vs.  Societe LDC SA

Danone SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Societe LDC SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Societe LDC SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Danone SA and Societe LDC

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

The idea behind Danone SA and Societe LDC 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.