Correlation Between Toro and Diamond Estates

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

By analyzing existing cross correlation between Toro Co and Diamond Estates Wines, you can compare the effects of market volatilities on Toro and Diamond Estates 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 Toro with a short position of Diamond Estates. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toro and Diamond Estates.

Diversification Opportunities for Toro and Diamond Estates

-0.58

Correlation Coefficient

Toro  Diamond Estates

Excellent diversification

The 3 months correlation between Toro and Diamond is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines and Toro 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 Toro Co are associated (or correlated) with Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of Toro i.e., Toro and Diamond Estates go up and down completely randomly.

Pair Corralation between Toro and Diamond Estates

Considering the 90-day investment horizon Toro Co is expected to under-perform the Diamond Estates. But the stock apears to be less risky and, when comparing its historical volatility, Toro Co is 1.51 times less risky than Diamond Estates. The stock trades about -0.1 of its potential returns per unit of risk. The Diamond Estates Wines is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Diamond Estates Wines on February 2, 2024 and sell it today you would earn a total of  1.00  from holding Diamond Estates Wines or generate 6.67% return on investment over 90 days.

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

Toro Co  vs.  Diamond Estates Wines

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Co 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Diamond Estates Wines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Estates Wines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Diamond Estates may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Toro and Diamond Estates

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

The idea behind Toro Co and Diamond Estates Wines 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.