Correlation Between Sempio Foods and DRGEM

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

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

Diversification Opportunities for Sempio Foods and DRGEM

0.69

Correlation Coefficient

Sempio Foods  DRGEM

Poor diversification

The 3 months correlation between Sempio and DRGEM is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sempio Foods Co and DRGEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRGEM and Sempio 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 Sempio Foods Co are associated (or correlated) with DRGEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRGEM has no effect on the direction of Sempio Foods i.e., Sempio Foods and DRGEM go up and down completely randomly.

Pair Corralation between Sempio Foods and DRGEM

Assuming the 90 days trading horizon Sempio Foods Co is expected to generate 0.97 times more return on investment than DRGEM. However, Sempio Foods Co is 1.03 times less risky than DRGEM. It trades about -0.1 of its potential returns per unit of risk. DRGEM is currently generating about -0.3 per unit of risk. If you would invest  2,800,000  in Sempio Foods Co on September 12, 2024 and sell it today you would lose (375,000) from holding Sempio Foods Co or give up 13.39% of portfolio value over 90 days.

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

Sempio Foods Co  vs.  DRGEM

Sempio Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sempio Foods Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

DRGEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRGEM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sempio Foods and DRGEM

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

The idea behind Sempio Foods Co and DRGEM 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.