Correlation Between Lifeway Foods and Danone SA

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

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

Diversification Opportunities for Lifeway Foods and Danone SA

0.35

Correlation Coefficient

Lifeway Foods  Danone SA

Weak diversification

The 3 months correlation between Lifeway and Danone is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and Lifeway Foods 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 Lifeway Foods are associated (or correlated) with Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of Lifeway Foods i.e., Lifeway Foods and Danone SA go up and down completely randomly.

Pair Corralation between Lifeway Foods and Danone SA

Assuming the 90 days horizon Lifeway Foods is expected to generate 6.62 times more return on investment than Danone SA. However, Lifeway Foods is 6.62 times more volatile than Danone SA. It trades about 0.0 of its potential returns per unit of risk. Danone SA is currently generating about -0.07 per unit of risk. If you would invest  2,420  in Lifeway Foods on August 31, 2024 and sell it today you would lose (80.00) from holding Lifeway Foods or give up 3.31% of portfolio value over 90 days.

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

Lifeway Foods  vs.  Danone SA

Lifeway Foods

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lifeway Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Danone SA

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Danone SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lifeway Foods and Danone SA

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

The idea behind Lifeway Foods and Danone SA 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.