Correlation Between National Beverage and TreeHouse Foods

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Can any of the company-specific risk be diversified away by investing in both National Beverage and TreeHouse 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 National Beverage and TreeHouse Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Beverage Corp and TreeHouse Foods, you can compare the effects of market volatilities on National Beverage and TreeHouse 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 National Beverage with a short position of TreeHouse Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and TreeHouse Foods.

Diversification Opportunities for National Beverage and TreeHouse Foods

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between National and TreeHouse is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and TreeHouse Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TreeHouse Foods and National Beverage 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 National Beverage Corp are associated (or correlated) with TreeHouse Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TreeHouse Foods has no effect on the direction of National Beverage i.e., National Beverage and TreeHouse Foods go up and down completely randomly.

Pair Corralation between National Beverage and TreeHouse Foods

Assuming the 90 days horizon National Beverage Corp is expected to generate 0.87 times more return on investment than TreeHouse Foods. However, National Beverage Corp is 1.16 times less risky than TreeHouse Foods. It trades about 0.01 of its potential returns per unit of risk. TreeHouse Foods is currently generating about -0.01 per unit of risk. If you would invest  4,005  in National Beverage Corp on October 6, 2024 and sell it today you would earn a total of  95.00  from holding National Beverage Corp or generate 2.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

National Beverage Corp  vs.  TreeHouse Foods

 Performance 
       Timeline  
National Beverage Corp 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
TreeHouse Foods 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days TreeHouse Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TreeHouse Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

National Beverage and TreeHouse Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with National Beverage and TreeHouse Foods

The main advantage of trading using opposite National Beverage and TreeHouse Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage position performs unexpectedly, TreeHouse 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 TreeHouse Foods will offset losses from the drop in TreeHouse Foods' long position.
The idea behind National Beverage Corp and TreeHouse 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.
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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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