Correlation Between Air New and Dairy Farm
Can any of the company-specific risk be diversified away by investing in both Air New and Dairy Farm 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 Air New and Dairy Farm into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air New Zealand and Dairy Farm International, you can compare the effects of market volatilities on Air New and Dairy Farm 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 Air New with a short position of Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Dairy Farm.
Diversification Opportunities for Air New and Dairy Farm
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Air and Dairy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and Air New 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 Air New Zealand are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of Air New i.e., Air New and Dairy Farm go up and down completely randomly.
Pair Corralation between Air New and Dairy Farm
Assuming the 90 days trading horizon Air New Zealand is expected to generate 0.65 times more return on investment than Dairy Farm. However, Air New Zealand is 1.53 times less risky than Dairy Farm. It trades about 0.22 of its potential returns per unit of risk. Dairy Farm International is currently generating about -0.01 per unit of risk. If you would invest 29.00 in Air New Zealand on September 15, 2024 and sell it today you would earn a total of 2.00 from holding Air New Zealand or generate 6.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air New Zealand vs. Dairy Farm International
Performance |
| Timeline |
| Air New Zealand |
| Dairy Farm International |
Air New and Dairy Farm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air New and Dairy Farm
The main advantage of trading using opposite Air New and Dairy Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air New position performs unexpectedly, Dairy Farm 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 Dairy Farm will offset losses from the drop in Dairy Farm's long position.The idea behind Air New Zealand and Dairy Farm International 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.| Dairy Farm vs. Q2M Managementberatung AG | Dairy Farm vs. Coor Service Management | Dairy Farm vs. Ares Management Corp | Dairy Farm vs. Air New Zealand |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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