Correlation Between Dairy Farm and Corteva

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

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

Diversification Opportunities for Dairy Farm and Corteva

0.84

Correlation Coefficient

Dairy Farm  Corteva

Very poor diversification

The 3 months correlation between Dairy and Corteva is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Corteva in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corteva and Dairy Farm 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 Dairy Farm International are associated (or correlated) with Corteva. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corteva has no effect on the direction of Dairy Farm i.e., Dairy Farm and Corteva go up and down completely randomly.

Pair Corralation between Dairy Farm and Corteva

Assuming the 90 days trading horizon Dairy Farm International is expected to generate 2.35 times more return on investment than Corteva. However, Dairy Farm is 2.35 times more volatile than Corteva. It trades about 0.16 of its potential returns per unit of risk. Corteva is currently generating about 0.12 per unit of risk. If you would invest  153.00  in Dairy Farm International on September 14, 2024 and sell it today you would earn a total of  65.00  from holding Dairy Farm International or generate 42.48% return on investment over 90 days.

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

Dairy Farm International  vs.  Corteva

Dairy Farm International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

Corteva

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Corteva are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Corteva unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dairy Farm and Corteva

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

The idea behind Dairy Farm International and Corteva 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.