Correlation Between Food Life and Nucor

Can any of the company-specific risk be diversified away by investing in both Food Life and Nucor 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 Nucor 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 Nucor, you can compare the effects of market volatilities on Food Life and Nucor 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 Nucor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and Nucor.

Diversification Opportunities for Food Life and Nucor

-0.23

Correlation Coefficient

Food Life  Nucor

Very good diversification

The 3 months correlation between Food and Nucor is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and Nucor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor 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 Nucor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor has no effect on the direction of Food Life i.e., Food Life and Nucor go up and down completely randomly.

Pair Corralation between Food Life and Nucor

Assuming the 90 days horizon Food Life Companies is expected to generate 0.68 times more return on investment than Nucor. However, Food Life Companies is 1.47 times less risky than Nucor. It trades about -0.34 of its potential returns per unit of risk. Nucor is currently generating about -0.76 per unit of risk. If you would invest  2,200  in Food Life Companies on October 4, 2024 and sell it today you would lose (200.00) from holding Food Life Companies or give up 9.09% of portfolio value over 90 days.

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

Food Life Companies  vs.  Nucor

Food Life Companies

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 10 (%) 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.

Nucor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor 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 Food Life and Nucor

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

The idea behind Food Life Companies and Nucor 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.