Correlation Between Flour Mills and Wool Industry

Can any of the company-specific risk be diversified away by investing in both Flour Mills and Wool Industry 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 Flour Mills and Wool Industry into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Flour Mills Kepenos and Wool Industry Tria, you can compare the effects of market volatilities on Flour Mills and Wool Industry 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 Flour Mills with a short position of Wool Industry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flour Mills and Wool Industry.

Diversification Opportunities for Flour Mills and Wool Industry

0.69

Correlation Coefficient

Flour Mills  Wool Industry

Poor diversification

The 3 months correlation between Flour and Wool is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Flour Mills Kepenos and Wool Industry Tria in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wool Industry Tria and Flour Mills 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 Flour Mills Kepenos are associated (or correlated) with Wool Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wool Industry Tria has no effect on the direction of Flour Mills i.e., Flour Mills and Wool Industry go up and down completely randomly.

Pair Corralation between Flour Mills and Wool Industry

Assuming the 90 days trading horizon Flour Mills is expected to generate 3.71 times less return on investment than Wool Industry. But when comparing it to its historical volatility, Flour Mills Kepenos is 2.56 times less risky than Wool Industry. It trades about 0.1 of its potential returns per unit of risk. Wool Industry Tria is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Wool Industry Tria on April 23, 2025 and sell it today you would earn a total of  265.00  from holding Wool Industry Tria or generate 53.0% return on investment over 90 days.

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

Flour Mills Kepenos  vs.  Wool Industry Tria

Flour Mills Kepenos

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flour Mills Kepenos are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Flour Mills sustained solid returns over the last few months and may actually be approaching a breakup point.

Wool Industry Tria

Risk-Adjusted Performance

Good

Over the last 90 days Wool Industry Tria has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively weak basic indicators, Wool Industry unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flour Mills and Wool Industry

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

The idea behind Flour Mills Kepenos and Wool Industry Tria 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 Global Correlations module to find global opportunities by holding instruments from different markets.