Correlation Between Tate Lyle and Associated British
Can any of the company-specific risk be diversified away by investing in both Tate Lyle and Associated British 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 Tate Lyle and Associated British into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tate Lyle PLC and Associated British Foods, you can compare the effects of market volatilities on Tate Lyle and Associated British 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 Tate Lyle with a short position of Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tate Lyle and Associated British.
Diversification Opportunities for Tate Lyle and Associated British
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Tate and Associated is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Tate Lyle PLC and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods and Tate Lyle 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 Tate Lyle PLC are associated (or correlated) with Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Tate Lyle i.e., Tate Lyle and Associated British go up and down completely randomly.
Pair Corralation between Tate Lyle and Associated British
Assuming the 90 days horizon Tate Lyle is expected to generate 1.73 times less return on investment than Associated British. But when comparing it to its historical volatility, Tate Lyle PLC is 1.65 times less risky than Associated British. It trades about 0.17 of its potential returns per unit of risk. Associated British Foods is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 3,094 in Associated British Foods on January 25, 2024 and sell it today you would earn a total of 320.00 from holding Associated British Foods or generate 10.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tate Lyle PLC vs. Associated British Foods
Performance |
| Timeline |
| Tate Lyle PLC |
| Associated British Foods |
Tate Lyle and Associated British Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tate Lyle and Associated British
The main advantage of trading using opposite Tate Lyle and Associated British positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tate Lyle position performs unexpectedly, Associated British 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 Associated British will offset losses from the drop in Associated British's long position.The idea behind Tate Lyle PLC and Associated British Foods 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.| Associated British vs. Nichirei | Associated British vs. Kellanova | Associated British vs. Lancaster Colony | Associated British vs. The A2 Milk |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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