Correlation Between Associated British and Danone PK

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

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

Diversification Opportunities for Associated British and Danone PK

0.42

Correlation Coefficient

Associated British  Danone PK

Very weak diversification

The 3 months correlation between Associated and Danone is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Danone PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone PK and Associated British 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 Associated British Foods are associated (or correlated) with Danone PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone PK has no effect on the direction of Associated British i.e., Associated British and Danone PK go up and down completely randomly.

Pair Corralation between Associated British and Danone PK

If you would invest  2,996  in Associated British Foods on January 29, 2024 and sell it today you would earn a total of  167.00  from holding Associated British Foods or generate 5.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	4.76%
Values	Daily Returns

Associated British Foods  vs.  Danone PK

Associated British Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Associated British may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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.

Pair Trading with Associated British and Danone PK

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

The idea behind Associated British Foods and Danone PK 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.