Correlation Between Bunzl Plc and US Foods

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

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

Diversification Opportunities for Bunzl Plc and US Foods

0.44

Correlation Coefficient

Bunzl Plc  US Foods

Very weak diversification

The 3 months correlation between Bunzl and USFD is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Bunzl plc and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding and Bunzl Plc 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 Bunzl plc are associated (or correlated) with US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of Bunzl Plc i.e., Bunzl Plc and US Foods go up and down completely randomly.

Pair Corralation between Bunzl Plc and US Foods

Assuming the 90 days horizon Bunzl plc is expected to under-perform the US Foods. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bunzl plc is 1.04 times less risky than US Foods. The pink sheet trades about -0.09 of its potential returns per unit of risk. The US Foods Holding is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,977  in US Foods Holding on November 28, 2024 and sell it today you would earn a total of  88.00  from holding US Foods Holding or generate 1.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Bunzl plc  vs.  US Foods Holding

Bunzl plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bunzl plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Bunzl Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

US Foods Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in US Foods Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, US Foods is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bunzl Plc and US Foods

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

The idea behind Bunzl plc and US Foods Holding 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.