Correlation Between Deluxe and Clean Seas

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

By analyzing existing cross correlation between Deluxe and Clean Seas Seafood, you can compare the effects of market volatilities on Deluxe and Clean Seas 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 Deluxe with a short position of Clean Seas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deluxe and Clean Seas.

Diversification Opportunities for Deluxe and Clean Seas

-0.17

Correlation Coefficient

Deluxe  Clean Seas

Good diversification

The 3 months correlation between Deluxe and Clean is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Deluxe and Clean Seas Seafood in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Seas Seafood and Deluxe 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 Deluxe are associated (or correlated) with Clean Seas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Seas Seafood has no effect on the direction of Deluxe i.e., Deluxe and Clean Seas go up and down completely randomly.

Pair Corralation between Deluxe and Clean Seas

Considering the 90-day investment horizon Deluxe is expected to generate 0.26 times more return on investment than Clean Seas. However, Deluxe is 3.92 times less risky than Clean Seas. It trades about -0.04 of its potential returns per unit of risk. Clean Seas Seafood is currently generating about -0.24 per unit of risk. If you would invest  2,262  in Deluxe on October 25, 2024 and sell it today you would lose (30.00) from holding Deluxe or give up 1.33% of portfolio value over 90 days.

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

Deluxe  vs.  Clean Seas Seafood

Deluxe

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

Clean Seas Seafood

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Seas Seafood has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Deluxe and Clean Seas

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

The idea behind Deluxe and Clean Seas Seafood 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.