Correlation Between Flowers Foods and Freshpet

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

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

Diversification Opportunities for Flowers Foods and Freshpet

-0.05

Correlation Coefficient

Flowers Foods  Freshpet

Good diversification

The 3 months correlation between Flowers and Freshpet is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Flowers Foods and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet and Flowers 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 Flowers Foods are associated (or correlated) with Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Flowers Foods i.e., Flowers Foods and Freshpet go up and down completely randomly.

Pair Corralation between Flowers Foods and Freshpet

Assuming the 90 days horizon Flowers Foods is expected to under-perform the Freshpet. But the stock apears to be less risky and, when comparing its historical volatility, Flowers Foods is 1.65 times less risky than Freshpet. The stock trades about -0.09 of its potential returns per unit of risk. The Freshpet is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  12,315  in Freshpet on October 23, 2024 and sell it today you would earn a total of  2,930  from holding Freshpet or generate 23.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Flowers Foods  vs.  Freshpet

Flowers Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flowers Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Freshpet

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Freshpet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flowers Foods and Freshpet

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

The idea behind Flowers Foods and Freshpet 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.