Correlation Between Danone PK and Associated British

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

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

Diversification Opportunities for Danone PK and Associated British

0.25

Correlation Coefficient

Danone PK  Associated British

Modest diversification

The 3 months correlation between Danone and Associated is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Danone PK and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods and Danone PK 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 PK are associated (or correlated) with Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Danone PK i.e., Danone PK and Associated British go up and down completely randomly.

Pair Corralation between Danone PK and Associated British

Assuming the 90 days horizon Danone PK is expected to generate 5.58 times less return on investment than Associated British. But when comparing it to its historical volatility, Danone PK is 1.56 times less risky than Associated British. It trades about 0.02 of its potential returns per unit of risk. Associated British Foods is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,881  in Associated British Foods on January 20, 2024 and sell it today you would earn a total of  1,163  from holding Associated British Foods or generate 61.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.94%
Values	Daily Returns

Danone PK  vs.  Associated British Foods

Danone PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Associated British Foods

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, Associated British may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Danone PK and Associated British

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

The idea behind Danone PK and Associated British Foods 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.