Correlation Between Berkeley Energia and Nomad Foods

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

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

Diversification Opportunities for Berkeley Energia and Nomad Foods

0.68

Correlation Coefficient

Berkeley Energia  Nomad Foods

Poor diversification

The 3 months correlation between Berkeley and Nomad is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Berkeley Energia Limited and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods and Berkeley Energia 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 Berkeley Energia Limited 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 Berkeley Energia i.e., Berkeley Energia and Nomad Foods go up and down completely randomly.

Pair Corralation between Berkeley Energia and Nomad Foods

Assuming the 90 days horizon Berkeley Energia Limited is expected to generate 3.16 times more return on investment than Nomad Foods. However, Berkeley Energia is 3.16 times more volatile than Nomad Foods. It trades about 0.09 of its potential returns per unit of risk. Nomad Foods is currently generating about 0.12 per unit of risk. If you would invest  19.00  in Berkeley Energia Limited on December 21, 2024 and sell it today you would earn a total of  5.00  from holding Berkeley Energia Limited or generate 26.32% return on investment over 90 days.

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

Berkeley Energia Limited  vs.  Nomad Foods

Berkeley Energia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkeley Energia Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Berkeley Energia reported solid returns over the last few months and may actually be approaching a breakup point.

Nomad Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nomad Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkeley Energia and Nomad Foods

The main advantage of trading using opposite Berkeley Energia and Nomad Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkeley Energia 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 Berkeley Energia Limited 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.