Correlation Between DAIRY FARM and ETFS Coffee
Can any of the company-specific risk be diversified away by investing in both DAIRY FARM and ETFS Coffee 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 DAIRY FARM and ETFS Coffee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DAIRY FARM INTL and ETFS Coffee ETC, you can compare the effects of market volatilities on DAIRY FARM and ETFS Coffee 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 DAIRY FARM with a short position of ETFS Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of DAIRY FARM and ETFS Coffee.
Diversification Opportunities for DAIRY FARM and ETFS Coffee
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between DAIRY and ETFS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding DAIRY FARM INTL and ETFS Coffee ETC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Coffee ETC and DAIRY FARM 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 DAIRY FARM INTL are associated (or correlated) with ETFS Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Coffee ETC has no effect on the direction of DAIRY FARM i.e., DAIRY FARM and ETFS Coffee go up and down completely randomly.
Pair Corralation between DAIRY FARM and ETFS Coffee
Assuming the 90 days trading horizon DAIRY FARM INTL is expected to under-perform the ETFS Coffee. But the stock apears to be less risky and, when comparing its historical volatility, DAIRY FARM INTL is 1.88 times less risky than ETFS Coffee. The stock trades about -0.01 of its potential returns per unit of risk. The ETFS Coffee ETC is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 4,131 in ETFS Coffee ETC on September 13, 2024 and sell it today you would earn a total of 1,108 from holding ETFS Coffee ETC or generate 26.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
DAIRY FARM INTL vs. ETFS Coffee ETC
Performance |
| Timeline |
| DAIRY FARM INTL |
| ETFS Coffee ETC |
DAIRY FARM and ETFS Coffee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DAIRY FARM and ETFS Coffee
The main advantage of trading using opposite DAIRY FARM and ETFS Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAIRY FARM position performs unexpectedly, ETFS Coffee 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 ETFS Coffee will offset losses from the drop in ETFS Coffee's long position.The idea behind DAIRY FARM INTL and ETFS Coffee ETC 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.| ETFS Coffee vs. BW OFFSHORE LTD | ETFS Coffee vs. AM EAGLE OUTFITTERS | ETFS Coffee vs. Ramsay Health Care | ETFS Coffee vs. ATRYS HEALTH SA |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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