Correlation Between Australian Dairy and PM Capital

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

By analyzing existing cross correlation between Australian Dairy Farms and PM Capital Global, you can compare the effects of market volatilities on Australian Dairy and PM Capital 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 Australian Dairy with a short position of PM Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Dairy and PM Capital.

Diversification Opportunities for Australian Dairy and PM Capital

0.08

Correlation Coefficient

Australian Dairy  PM Capital

Significant diversification

The 3 months correlation between Australian and PGF is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Australian Dairy Farms and PM Capital Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PM Capital Global and Australian Dairy 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 Australian Dairy Farms are associated (or correlated) with PM Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PM Capital Global has no effect on the direction of Australian Dairy i.e., Australian Dairy and PM Capital go up and down completely randomly.

Pair Corralation between Australian Dairy and PM Capital

Assuming the 90 days trading horizon Australian Dairy Farms is expected to generate 7.91 times more return on investment than PM Capital. However, Australian Dairy is 7.91 times more volatile than PM Capital Global. It trades about 0.32 of its potential returns per unit of risk. PM Capital Global is currently generating about -0.03 per unit of risk. If you would invest  1.30  in Australian Dairy Farms on March 28, 2024 and sell it today you would earn a total of  0.90  from holding Australian Dairy Farms or generate 69.23% return on investment over 90 days.

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

Australian Dairy Farms  vs.  PM Capital Global

Australian Dairy Farms

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Dairy Farms are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Australian Dairy unveiled solid returns over the last few months and may actually be approaching a breakup point.

PM Capital Global

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PM Capital Global are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, PM Capital may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Australian Dairy and PM Capital

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

The idea behind Australian Dairy Farms and PM Capital Global 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.