Correlation Between Nomad Foods and RTL GROUP

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

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

Diversification Opportunities for Nomad Foods and RTL GROUP

0.84

Correlation Coefficient

Nomad Foods  RTL GROUP

Very poor diversification

The 3 months correlation between Nomad and RTL is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Nomad Foods and RTL GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RTL GROUP and Nomad Foods 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 Nomad Foods are associated (or correlated) with RTL GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RTL GROUP has no effect on the direction of Nomad Foods i.e., Nomad Foods and RTL GROUP go up and down completely randomly.

Pair Corralation between Nomad Foods and RTL GROUP

Assuming the 90 days trading horizon Nomad Foods is expected to generate 2.37 times less return on investment than RTL GROUP. In addition to that, Nomad Foods is 1.37 times more volatile than RTL GROUP. It trades about 0.11 of its total potential returns per unit of risk. RTL GROUP is currently generating about 0.35 per unit of volatility. If you would invest  2,650  in RTL GROUP on December 20, 2024 and sell it today you would earn a total of  935.00  from holding RTL GROUP or generate 35.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Nomad Foods  vs.  RTL GROUP

Nomad Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nomad Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

RTL GROUP

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in RTL GROUP are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, RTL GROUP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nomad Foods and RTL GROUP

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

The idea behind Nomad Foods and RTL GROUP 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.