Correlation Between Origin Agritech and TreeHouse Foods

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

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

Diversification Opportunities for Origin Agritech and TreeHouse Foods

-0.07

Correlation Coefficient

Origin Agritech  TreeHouse Foods

Good diversification

The 3 months correlation between Origin and TreeHouse is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Origin Agritech and TreeHouse Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TreeHouse Foods and Origin Agritech 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 Origin Agritech 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 Origin Agritech i.e., Origin Agritech and TreeHouse Foods go up and down completely randomly.

Pair Corralation between Origin Agritech and TreeHouse Foods

Assuming the 90 days trading horizon Origin Agritech is expected to under-perform the TreeHouse Foods. In addition to that, Origin Agritech is 2.89 times more volatile than TreeHouse Foods. It trades about -0.02 of its total potential returns per unit of risk. TreeHouse Foods is currently generating about -0.02 per unit of volatility. If you would invest  4,440  in TreeHouse Foods on October 23, 2024 and sell it today you would lose (1,060) from holding TreeHouse Foods or give up 23.87% of portfolio value over 90 days.

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

Origin Agritech  vs.  TreeHouse Foods

Origin Agritech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Origin Agritech 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.

TreeHouse Foods

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Origin Agritech and TreeHouse Foods

The main advantage of trading using opposite Origin Agritech and TreeHouse Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Origin Agritech 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 Origin Agritech 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.