Correlation Between Nomad Foods and PT Steel

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

By analyzing existing cross correlation between Nomad Foods and PT Steel Pipe, you can compare the effects of market volatilities on Nomad Foods and PT Steel 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 PT Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nomad Foods and PT Steel.

Diversification Opportunities for Nomad Foods and PT Steel

0.01

Correlation Coefficient

Nomad Foods  PT Steel

Significant diversification

The 3 months correlation between Nomad and S08 is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Nomad Foods and PT Steel Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Steel Pipe 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 PT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Steel Pipe has no effect on the direction of Nomad Foods i.e., Nomad Foods and PT Steel go up and down completely randomly.

Pair Corralation between Nomad Foods and PT Steel

Assuming the 90 days trading horizon Nomad Foods is expected to under-perform the PT Steel. But the stock apears to be less risky and, when comparing its historical volatility, Nomad Foods is 3.14 times less risky than PT Steel. The stock trades about -0.03 of its potential returns per unit of risk. The PT Steel Pipe is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1.25  in PT Steel Pipe on October 10, 2024 and sell it today you would lose (0.10) from holding PT Steel Pipe or give up 8.0% of portfolio value over 90 days.

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

Nomad Foods  vs.  PT Steel Pipe

Nomad Foods

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Nomad Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nomad Foods is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

PT Steel Pipe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Steel Pipe has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nomad Foods and PT Steel

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

The idea behind Nomad Foods and PT Steel Pipe 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.