Correlation Between First and Premier Foods

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

By analyzing existing cross correlation between First Class Metals and Premier Foods PLC, you can compare the effects of market volatilities on First and Premier 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 First with a short position of Premier Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of First and Premier Foods.

Diversification Opportunities for First and Premier Foods

0.39

Correlation Coefficient

First  Premier Foods

Weak diversification

The 3 months correlation between First and Premier is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods PLC and First 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 First Class Metals are associated (or correlated) with Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of First i.e., First and Premier Foods go up and down completely randomly.

Pair Corralation between First and Premier Foods

Assuming the 90 days trading horizon First Class Metals is expected to generate 3.65 times more return on investment than Premier Foods. However, First is 3.65 times more volatile than Premier Foods PLC. It trades about 0.01 of its potential returns per unit of risk. Premier Foods PLC is currently generating about -0.04 per unit of risk. If you would invest  185.00  in First Class Metals on October 26, 2024 and sell it today you would lose (5.00) from holding First Class Metals or give up 2.7% of portfolio value over 90 days.

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

First Class Metals  vs.  Premier Foods PLC

First Class Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Class Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, First is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Premier Foods PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Foods PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Premier Foods is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First and Premier Foods

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

The idea behind First Class Metals and Premier Foods PLC 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.