Correlation Between Central Garden and Seneca Foods

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

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

Diversification Opportunities for Central Garden and Seneca Foods

0.24

Correlation Coefficient

Central Garden  Seneca Foods

Modest diversification

The 3 months correlation between Central and Seneca is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Seneca Foods Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seneca Foods Corp and Central Garden 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 Central Garden Pet are associated (or correlated) with Seneca Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seneca Foods Corp has no effect on the direction of Central Garden i.e., Central Garden and Seneca Foods go up and down completely randomly.

Pair Corralation between Central Garden and Seneca Foods

Assuming the 90 days horizon Central Garden Pet is expected to under-perform the Seneca Foods. In addition to that, Central Garden is 1.16 times more volatile than Seneca Foods Corp. It trades about -0.06 of its total potential returns per unit of risk. Seneca Foods Corp is currently generating about 0.14 per unit of volatility. If you would invest  7,100  in Seneca Foods Corp on November 27, 2024 and sell it today you would earn a total of  1,098  from holding Seneca Foods Corp or generate 15.46% return on investment over 90 days.

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

Central Garden Pet  vs.  Seneca Foods Corp

Central Garden Pet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Seneca Foods Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Seneca Foods Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Seneca Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and Seneca Foods

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

The idea behind Central Garden Pet and Seneca Foods Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.