Correlation Between BAB and Premier Foods

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

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

Diversification Opportunities for BAB and Premier Foods

0.75

Correlation Coefficient

BAB  Premier Foods

Poor diversification

The 3 months correlation between BAB and Premier is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BAB Inc and Premier Foods Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods Plc and BAB 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 BAB Inc are associated (or correlated) with Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods Plc has no effect on the direction of BAB i.e., BAB and Premier Foods go up and down completely randomly.

Pair Corralation between BAB and Premier Foods

If you would invest  208.00  in Premier Foods Plc on October 10, 2024 and sell it today you would earn a total of  0.00  from holding Premier Foods Plc or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	5.0%
Values	Daily Returns

BAB Inc  vs.  Premier Foods Plc

BAB Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BAB Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, BAB may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Premier Foods Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Foods Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Premier 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 BAB and Premier Foods

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

The idea behind BAB Inc and Premier Foods Plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.