Correlation Between Danone SA and Branded Legacy

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

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

Diversification Opportunities for Danone SA and Branded Legacy

0.65

Correlation Coefficient

Danone SA  Branded Legacy

Poor diversification

The 3 months correlation between Danone and Branded is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy 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 Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of Danone SA i.e., Danone SA and Branded Legacy go up and down completely randomly.

Pair Corralation between Danone SA and Branded Legacy

Assuming the 90 days horizon Danone SA is expected to generate 10.24 times less return on investment than Branded Legacy. But when comparing it to its historical volatility, Danone SA is 16.18 times less risky than Branded Legacy. It trades about 0.05 of its potential returns per unit of risk. Branded Legacy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.20  in Branded Legacy on September 29, 2024 and sell it today you would lose (0.15) from holding Branded Legacy or give up 75.0% of portfolio value over 90 days.

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

Danone SA  vs.  Branded Legacy

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Branded Legacy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Branded Legacy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Danone SA and Branded Legacy

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

The idea behind Danone SA and Branded Legacy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..