Correlation Between Danone SA and General Mills

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

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

Diversification Opportunities for Danone SA and General Mills

-0.02

Correlation Coefficient

Danone SA  General Mills

Good diversification

The 3 months correlation between Danone and General is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and General Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Mills 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 General Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Mills has no effect on the direction of Danone SA i.e., Danone SA and General Mills go up and down completely randomly.

Pair Corralation between Danone SA and General Mills

Assuming the 90 days horizon Danone SA is expected to generate 0.82 times more return on investment than General Mills. However, Danone SA is 1.22 times less risky than General Mills. It trades about 0.06 of its potential returns per unit of risk. General Mills is currently generating about -0.04 per unit of risk. If you would invest  6,286  in Danone SA on August 31, 2024 and sell it today you would earn a total of  196.00  from holding Danone SA or generate 3.12% 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.  General Mills

Danone SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Danone SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

General Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, General Mills is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Danone SA and General Mills

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

The idea behind Danone SA and General Mills 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.