Correlation Between Central Garden and Westrock Coffee

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Can any of the company-specific risk be diversified away by investing in both Central Garden and Westrock Coffee 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 Westrock Coffee 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 Westrock Coffee, you can compare the effects of market volatilities on Central Garden and Westrock Coffee 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 Westrock Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Westrock Coffee.

Diversification Opportunities for Central Garden and Westrock Coffee

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between Central and Westrock is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Westrock Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westrock Coffee 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 Westrock Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westrock Coffee has no effect on the direction of Central Garden i.e., Central Garden and Westrock Coffee go up and down completely randomly.

Pair Corralation between Central Garden and Westrock Coffee

Assuming the 90 days horizon Central Garden Pet is expected to under-perform the Westrock Coffee. But the stock apears to be less risky and, when comparing its historical volatility, Central Garden Pet is 2.29 times less risky than Westrock Coffee. The stock trades about -0.03 of its potential returns per unit of risk. The Westrock Coffee is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  658.00  in Westrock Coffee on December 27, 2024 and sell it today you would earn a total of  56.00  from holding Westrock Coffee or generate 8.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Central Garden Pet  vs.  Westrock Coffee

 Performance 
       Timeline  
Central Garden Pet 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Westrock Coffee 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Westrock Coffee are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Westrock Coffee unveiled solid returns over the last few months and may actually be approaching a breakup point.

Central Garden and Westrock Coffee Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Central Garden and Westrock Coffee

The main advantage of trading using opposite Central Garden and Westrock Coffee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Garden position performs unexpectedly, Westrock Coffee 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 Westrock Coffee will offset losses from the drop in Westrock Coffee's long position.
The idea behind Central Garden Pet and Westrock Coffee 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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