Correlation Between Associated British and Nomad Foods

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

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

Diversification Opportunities for Associated British and Nomad Foods

-0.33

Correlation Coefficient

Associated British  Nomad Foods

Very good diversification

The 3 months correlation between Associated and Nomad is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods and Associated British 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 Associated British Foods are associated (or correlated) with Nomad Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomad Foods has no effect on the direction of Associated British i.e., Associated British and Nomad Foods go up and down completely randomly.

Pair Corralation between Associated British and Nomad Foods

Assuming the 90 days horizon Associated British Foods is expected to under-perform the Nomad Foods. But the pink sheet apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.45 times less risky than Nomad Foods. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Nomad Foods is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,648  in Nomad Foods on December 30, 2024 and sell it today you would earn a total of  336.00  from holding Nomad Foods or generate 20.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.94%
Values	Daily Returns

Associated British Foods  vs.  Nomad Foods

Associated British Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Associated British is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Nomad Foods

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Nomad Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Associated British and Nomad Foods

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

The idea behind Associated British Foods and Nomad 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.