Correlation Between Premier Foods and Svenska Cellulosa

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

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

Diversification Opportunities for Premier Foods and Svenska Cellulosa

-0.54

Correlation Coefficient

Premier Foods  Svenska Cellulosa

Excellent diversification

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

Pair Corralation between Premier Foods and Svenska Cellulosa

Assuming the 90 days trading horizon Premier Foods PLC is expected to generate 0.75 times more return on investment than Svenska Cellulosa. However, Premier Foods PLC is 1.33 times less risky than Svenska Cellulosa. It trades about 0.1 of its potential returns per unit of risk. Svenska Cellulosa Aktiebolaget is currently generating about 0.02 per unit of risk. If you would invest  154.00  in Premier Foods PLC on September 24, 2024 and sell it today you would earn a total of  70.00  from holding Premier Foods PLC or generate 45.45% return on investment over 90 days.

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

Premier Foods PLC  vs.  Svenska Cellulosa Aktiebolaget

Premier Foods PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Premier Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Svenska Cellulosa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Svenska Cellulosa Aktiebolaget has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Premier Foods and Svenska Cellulosa

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

The idea behind Premier Foods PLC and Svenska Cellulosa Aktiebolaget 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.