Correlation Between A2 Milk and Kikkoman

Can any of the company-specific risk be diversified away by investing in both A2 Milk and Kikkoman 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 A2 Milk and Kikkoman into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The a2 Milk and Kikkoman, you can compare the effects of market volatilities on A2 Milk and Kikkoman 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 A2 Milk with a short position of Kikkoman. Check out your portfolio center. Please also check ongoing floating volatility patterns of A2 Milk and Kikkoman.

Diversification Opportunities for A2 Milk and Kikkoman

-0.58

Correlation Coefficient

A2 Milk  Kikkoman

Excellent diversification

The 3 months correlation between ACOPF and Kikkoman is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding The a2 Milk and Kikkoman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kikkoman and A2 Milk 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 The a2 Milk are associated (or correlated) with Kikkoman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kikkoman has no effect on the direction of A2 Milk i.e., A2 Milk and Kikkoman go up and down completely randomly.

Pair Corralation between A2 Milk and Kikkoman

Assuming the 90 days horizon A2 Milk is expected to generate 101.66 times less return on investment than Kikkoman. But when comparing it to its historical volatility, The a2 Milk is 30.55 times less risky than Kikkoman. It trades about 0.04 of its potential returns per unit of risk. Kikkoman is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,026  in Kikkoman on January 31, 2024 and sell it today you would earn a total of  264.00  from holding Kikkoman or generate 25.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	92.71%
Values	Daily Returns

The a2 Milk  vs.  Kikkoman

a2 Milk

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The a2 Milk are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, A2 Milk reported solid returns over the last few months and may actually be approaching a breakup point.

Kikkoman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kikkoman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with A2 Milk and Kikkoman

The main advantage of trading using opposite A2 Milk and Kikkoman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A2 Milk position performs unexpectedly, Kikkoman 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 Kikkoman will offset losses from the drop in Kikkoman's long position.

The idea behind The a2 Milk and Kikkoman 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.