Correlation Between Food Life and Cal Maine

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

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

Diversification Opportunities for Food Life and Cal Maine

-0.34

Correlation Coefficient

Food Life  Cal Maine

Very good diversification

The 3 months correlation between Food and Cal is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and Cal Maine Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cal Maine Foods and Food Life 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 Food Life Companies are associated (or correlated) with Cal Maine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cal Maine Foods has no effect on the direction of Food Life i.e., Food Life and Cal Maine go up and down completely randomly.

Pair Corralation between Food Life and Cal Maine

Assuming the 90 days horizon Food Life Companies is expected to generate 0.96 times more return on investment than Cal Maine. However, Food Life Companies is 1.05 times less risky than Cal Maine. It trades about 0.11 of its potential returns per unit of risk. Cal Maine Foods is currently generating about -0.03 per unit of risk. If you would invest  2,140  in Food Life Companies on November 29, 2024 and sell it today you would earn a total of  420.00  from holding Food Life Companies or generate 19.63% return on investment over 90 days.

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

Food Life Companies  vs.  Cal Maine Foods

Food Life Companies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

Cal Maine Foods

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Food Life and Cal Maine

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

The idea behind Food Life Companies and Cal Maine 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.