Correlation Between United States and Premier Foods

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

By analyzing existing cross correlation between United States Steel and Premier Foods PLC, you can compare the effects of market volatilities on United States and Premier Foods 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 United States with a short position of Premier Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Premier Foods.

Diversification Opportunities for United States and Premier Foods

-0.18

Correlation Coefficient

United States  Premier Foods

Good diversification

The 3 months correlation between United and Premier is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods PLC and United States 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 United States Steel are associated (or correlated) with Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of United States i.e., United States and Premier Foods go up and down completely randomly.

Pair Corralation between United States and Premier Foods

Assuming the 90 days trading horizon United States Steel is expected to generate 2.47 times more return on investment than Premier Foods. However, United States is 2.47 times more volatile than Premier Foods PLC. It trades about 0.16 of its potential returns per unit of risk. Premier Foods PLC is currently generating about -0.03 per unit of risk. If you would invest  3,205  in United States Steel on December 24, 2024 and sell it today you would earn a total of  896.00  from holding United States Steel or generate 27.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

United States Steel  vs.  Premier Foods PLC

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, United States unveiled solid returns over the last few months and may actually be approaching a breakup point.

Premier Foods PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premier Foods PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Premier Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United States and Premier Foods

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

The idea behind United States Steel and Premier Foods PLC 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.

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.