Can any of the company-specific risk be diversified away by investing in both Tyson Foods and Woodside Energy 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 Tyson Foods and Woodside Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tyson Foods and Woodside Energy Group, you can compare the effects of market volatilities on Tyson Foods and Woodside Energy 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 Tyson Foods with a short position of Woodside Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tyson Foods and Woodside Energy.
Diversification Opportunities for Tyson Foods and Woodside Energy
The 3 months correlation between Tyson and Woodside is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and Woodside Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodside Energy Group and Tyson 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 Tyson Foods are associated (or correlated) with Woodside Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodside Energy Group has no effect on the direction of Tyson Foods i.e., Tyson Foods and Woodside Energy go up and down completely randomly.
Pair Corralation between Tyson Foods and Woodside Energy
Considering the 90-day investment horizon Tyson Foods is expected to generate 0.92 times more return on investment than Woodside Energy. However, Tyson Foods is 1.09 times less risky than Woodside Energy. It trades about -0.08 of its potential returns per unit of risk. Woodside Energy Group is currently generating about -0.16 per unit of risk. If you would invest 4,924 in Tyson Foods on September 2, 2023 and sell it today you would lose (240.00) from holding Tyson Foods or give up 4.87% of portfolio value over 90 days.
Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm insiders.
Over the last 90 days Woodside Energy Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in January 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Tyson Foods and Woodside Energy Volatility Contrast
Predicted Return Density
Pair Trading with Tyson Foods and Woodside Energy
The main advantage of trading using opposite Tyson Foods and Woodside Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tyson Foods position performs unexpectedly, Woodside Energy 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 Woodside Energy will offset losses from the drop in Woodside Energy's long position.
The idea behind Tyson Foods and Woodside Energy Group 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.
Check out your portfolio center.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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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