Correlation Between Davis Commodities and SW Seed

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

By analyzing existing cross correlation between Davis Commodities Limited and SW Seed Company, you can compare the effects of market volatilities on Davis Commodities and SW Seed 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 Davis Commodities with a short position of SW Seed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Commodities and SW Seed.

Diversification Opportunities for Davis Commodities and SW Seed

-0.31

Correlation Coefficient

Davis Commodities  SW Seed

Very good diversification

The 3 months correlation between Davis and SANW is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Davis Commodities Limited and SW Seed Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SW Seed Company and Davis Commodities 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 Davis Commodities Limited are associated (or correlated) with SW Seed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SW Seed Company has no effect on the direction of Davis Commodities i.e., Davis Commodities and SW Seed go up and down completely randomly.

Pair Corralation between Davis Commodities and SW Seed

Given the investment horizon of 90 days Davis Commodities Limited is expected to under-perform the SW Seed. But the stock apears to be less risky and, when comparing its historical volatility, Davis Commodities Limited is 3.95 times less risky than SW Seed. The stock trades about -0.11 of its potential returns per unit of risk. The SW Seed Company is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  497.00  in SW Seed Company on September 3, 2024 and sell it today you would earn a total of  166.00  from holding SW Seed Company or generate 33.4% return on investment over 90 days.

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

Davis Commodities Limited  vs.  SW Seed Company

Davis Commodities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

SW Seed Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SW Seed Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SW Seed showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Davis Commodities and SW Seed

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

The idea behind Davis Commodities Limited and SW Seed Company 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.