Correlation Between Empire Company and High Liner

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

By analyzing existing cross correlation between Empire Company Limited and High Liner Foods, you can compare the effects of market volatilities on Empire Company and High Liner 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 Empire Company with a short position of High Liner. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire Company and High Liner.

Diversification Opportunities for Empire Company and High Liner

0.83

Correlation Coefficient

Empire Company  High Liner

Very poor diversification

The 3 months correlation between Empire and High is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Empire Company Limited and High Liner Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Liner Foods and Empire Company 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 Empire Company Limited are associated (or correlated) with High Liner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Liner Foods has no effect on the direction of Empire Company i.e., Empire Company and High Liner go up and down completely randomly.

Pair Corralation between Empire Company and High Liner

Assuming the 90 days trading horizon Empire Company is expected to generate 1.2 times less return on investment than High Liner. But when comparing it to its historical volatility, Empire Company Limited is 1.2 times less risky than High Liner. It trades about 0.11 of its potential returns per unit of risk. High Liner Foods is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,130  in High Liner Foods on October 2, 2024 and sell it today you would earn a total of  425.00  from holding High Liner Foods or generate 37.61% return on investment over 90 days.

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

Empire Company Limited  vs.  High Liner Foods

Empire Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Company Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Empire Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

High Liner Foods

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in High Liner Foods are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, High Liner displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire Company and High Liner

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

The idea behind Empire Company Limited and High Liner Foods 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.