Correlation Between Dairy Farm and Range Resources

Can any of the company-specific risk be diversified away by investing in both Dairy Farm and Range Resources 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 Range Resources 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 Range Resources Corp, you can compare the effects of market volatilities on Dairy Farm and Range Resources 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 Range Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dairy Farm and Range Resources.

Diversification Opportunities for Dairy Farm and Range Resources

0.69

Correlation Coefficient

Dairy Farm  Range Resources

Poor diversification

The 3 months correlation between Dairy and Range is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and Range Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Range Resources Corp 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 Range Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Range Resources Corp has no effect on the direction of Dairy Farm i.e., Dairy Farm and Range Resources go up and down completely randomly.

Pair Corralation between Dairy Farm and Range Resources

Assuming the 90 days trading horizon Dairy Farm International is expected to generate 2.23 times more return on investment than Range Resources. However, Dairy Farm is 2.23 times more volatile than Range Resources Corp. It trades about 0.21 of its potential returns per unit of risk. Range Resources Corp is currently generating about 0.41 per unit of risk. If you would invest  214.00  in Dairy Farm International on September 5, 2024 and sell it today you would earn a total of  18.00  from holding Dairy Farm International or generate 8.41% return on investment over 90 days.

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

Dairy Farm International  vs.  Range Resources Corp

Dairy Farm International

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

Range Resources Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Range Resources Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Range Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dairy Farm and Range Resources

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

The idea behind Dairy Farm International and Range Resources Corp 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.