Correlation Between Fresh Del and NASDAQ Biotechnology

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

By analyzing existing cross correlation between Fresh Del Monte and NASDAQ Biotechnology, you can compare the effects of market volatilities on Fresh Del and NASDAQ Biotechnology 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 Fresh Del with a short position of NASDAQ Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fresh Del and NASDAQ Biotechnology.

Diversification Opportunities for Fresh Del and NASDAQ Biotechnology

-0.54

Correlation Coefficient

Fresh Del  NASDAQ Biotechnology

Excellent diversification

The 3 months correlation between Fresh and NASDAQ is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Fresh Del Monte and NASDAQ Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NASDAQ Biotechnology and Fresh Del 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 Fresh Del Monte are associated (or correlated) with NASDAQ Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NASDAQ Biotechnology has no effect on the direction of Fresh Del i.e., Fresh Del and NASDAQ Biotechnology go up and down completely randomly.

Pair Corralation between Fresh Del and NASDAQ Biotechnology

Considering the 90-day investment horizon Fresh Del Monte is expected to generate 0.76 times more return on investment than NASDAQ Biotechnology. However, Fresh Del Monte is 1.32 times less risky than NASDAQ Biotechnology. It trades about 0.07 of its potential returns per unit of risk. NASDAQ Biotechnology is currently generating about -0.17 per unit of risk. If you would invest  3,347  in Fresh Del Monte on September 14, 2024 and sell it today you would earn a total of  48.00  from holding Fresh Del Monte or generate 1.43% return on investment over 90 days.

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

Fresh Del Monte  vs.  NASDAQ Biotechnology

Pair Trading with Fresh Del and NASDAQ Biotechnology

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

The idea behind Fresh Del Monte and NASDAQ Biotechnology 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.