Correlation Between Edible Garden and Davis Commodities

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

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

Diversification Opportunities for Edible Garden and Davis Commodities

0.52

Correlation Coefficient

Edible Garden  Davis Commodities

Very weak diversification

The 3 months correlation between Edible and Davis is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Edible Garden AG and Davis Commodities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Commodities and Edible Garden 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 Edible Garden AG are associated (or correlated) with Davis Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Commodities has no effect on the direction of Edible Garden i.e., Edible Garden and Davis Commodities go up and down completely randomly.

Pair Corralation between Edible Garden and Davis Commodities

Given the investment horizon of 90 days Edible Garden AG is expected to under-perform the Davis Commodities. In addition to that, Edible Garden is 2.94 times more volatile than Davis Commodities Limited. It trades about -0.28 of its total potential returns per unit of risk. Davis Commodities Limited is currently generating about -0.09 per unit of volatility. If you would invest  114.00  in Davis Commodities Limited on September 4, 2024 and sell it today you would lose (21.00) from holding Davis Commodities Limited or give up 18.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Edible Garden AG  vs.  Davis Commodities Limited

Edible Garden AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edible Garden AG 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 drivers 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.

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 unsteady 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.

Pair Trading with Edible Garden and Davis Commodities

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

The idea behind Edible Garden AG and Davis Commodities Limited 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.