Correlation Between Cal-Maine Foods and Ribbon Communications

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

By analyzing existing cross correlation between Cal Maine Foods and Ribbon Communications, you can compare the effects of market volatilities on Cal-Maine Foods and Ribbon Communications 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 Cal-Maine Foods with a short position of Ribbon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cal-Maine Foods and Ribbon Communications.

Diversification Opportunities for Cal-Maine Foods and Ribbon Communications

0.84

Correlation Coefficient

Cal-Maine Foods  Ribbon Communications

Very poor diversification

The 3 months correlation between Cal-Maine and Ribbon is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cal Maine Foods and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications and Cal-Maine Foods 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 Cal Maine Foods are associated (or correlated) with Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Cal-Maine Foods i.e., Cal-Maine Foods and Ribbon Communications go up and down completely randomly.

Pair Corralation between Cal-Maine Foods and Ribbon Communications

Assuming the 90 days trading horizon Cal Maine Foods is expected to generate 0.96 times more return on investment than Ribbon Communications. However, Cal Maine Foods is 1.05 times less risky than Ribbon Communications. It trades about 0.25 of its potential returns per unit of risk. Ribbon Communications is currently generating about 0.09 per unit of risk. If you would invest  8,382  in Cal Maine Foods on October 7, 2024 and sell it today you would earn a total of  1,998  from holding Cal Maine Foods or generate 23.84% return on investment over 90 days.

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

Cal Maine Foods  vs.  Ribbon Communications

Cal Maine Foods

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cal Maine Foods are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cal-Maine Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ribbon Communications

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cal-Maine Foods and Ribbon Communications

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

The idea behind Cal Maine Foods and Ribbon Communications 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.