Correlation Between Koninklijke Philips and Danone SA

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

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

Diversification Opportunities for Koninklijke Philips and Danone SA

-0.24

Correlation Coefficient

Koninklijke Philips  Danone SA

Very good diversification

The 3 months correlation between Koninklijke and Danone is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke Philips NV and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and Koninklijke Philips 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 Koninklijke Philips NV 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 Koninklijke Philips i.e., Koninklijke Philips and Danone SA go up and down completely randomly.

Pair Corralation between Koninklijke Philips and Danone SA

Assuming the 90 days trading horizon Koninklijke Philips NV is expected to under-perform the Danone SA. In addition to that, Koninklijke Philips is 3.18 times more volatile than Danone SA. It trades about -0.06 of its total potential returns per unit of risk. Danone SA is currently generating about 0.0 per unit of volatility. If you would invest  6,530  in Danone SA on September 14, 2024 and sell it today you would lose (6.00) from holding Danone SA or give up 0.09% of portfolio value over 90 days.

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

Koninklijke Philips NV  vs.  Danone SA

Koninklijke Philips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 somewhat strong basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Koninklijke Philips and Danone SA

The main advantage of trading using opposite Koninklijke Philips and Danone SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Koninklijke Philips 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 Koninklijke Philips NV 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.