Correlation Between A2 Milk and BG Foods

Can any of the company-specific risk be diversified away by investing in both A2 Milk and BG Foods 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 A2 Milk and BG Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The A2 Milk and BG Foods, you can compare the effects of market volatilities on A2 Milk and BG Foods 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 A2 Milk with a short position of BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of A2 Milk and BG Foods.

Diversification Opportunities for A2 Milk and BG Foods

0.56

Correlation Coefficient

A2 Milk  BG Foods

Very weak diversification

The 3 months correlation between ACOPY and BGS is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding The A2 Milk and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and A2 Milk 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 The A2 Milk are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of A2 Milk i.e., A2 Milk and BG Foods go up and down completely randomly.

Pair Corralation between A2 Milk and BG Foods

Assuming the 90 days horizon The A2 Milk is expected to under-perform the BG Foods. In addition to that, A2 Milk is 1.67 times more volatile than BG Foods. It trades about -0.12 of its total potential returns per unit of risk. BG Foods is currently generating about -0.05 per unit of volatility. If you would invest  1,129  in BG Foods on February 1, 2024 and sell it today you would lose (19.00) from holding BG Foods or give up 1.68% of portfolio value over 90 days.

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

The A2 Milk  vs.  BG Foods

A2 Milk

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The A2 Milk are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, A2 Milk showed solid returns over the last few months and may actually be approaching a breakup point.

BG Foods

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BG Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, BG Foods may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with A2 Milk and BG Foods

The main advantage of trading using opposite A2 Milk and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A2 Milk position performs unexpectedly, BG Foods 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 BG Foods will offset losses from the drop in BG Foods' long position.

The idea behind The A2 Milk and BG 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.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.