Correlation Between Foodlink and Frigoglass SAIC

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

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

Diversification Opportunities for Foodlink and Frigoglass SAIC

0.03

Correlation Coefficient

Foodlink  Frigoglass SAIC

Significant diversification

The 3 months correlation between Foodlink and Frigoglass is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Foodlink AE and Frigoglass SAIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frigoglass SAIC and Foodlink 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 Foodlink AE are associated (or correlated) with Frigoglass SAIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frigoglass SAIC has no effect on the direction of Foodlink i.e., Foodlink and Frigoglass SAIC go up and down completely randomly.

Pair Corralation between Foodlink and Frigoglass SAIC

Assuming the 90 days trading horizon Foodlink is expected to generate 1.01 times less return on investment than Frigoglass SAIC. But when comparing it to its historical volatility, Foodlink AE is 1.67 times less risky than Frigoglass SAIC. It trades about 0.11 of its potential returns per unit of risk. Frigoglass SAIC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Frigoglass SAIC on September 12, 2024 and sell it today you would earn a total of  3.00  from holding Frigoglass SAIC or generate 14.29% return on investment over 90 days.

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

Foodlink AE  vs.  Frigoglass SAIC

Foodlink AE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foodlink AE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Foodlink sustained solid returns over the last few months and may actually be approaching a breakup point.

Frigoglass SAIC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Frigoglass SAIC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Frigoglass SAIC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Foodlink and Frigoglass SAIC

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

The idea behind Foodlink AE and Frigoglass SAIC 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.