Correlation Between Innovative Food and US Foods

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

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

Diversification Opportunities for Innovative Food and US Foods

0.39

Correlation Coefficient

Innovative Food  US Foods

Weak diversification

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

Pair Corralation between Innovative Food and US Foods

Given the investment horizon of 90 days Innovative Food Hldg is expected to generate 1.95 times more return on investment than US Foods. However, Innovative Food is 1.95 times more volatile than US Foods Holding. It trades about 0.04 of its potential returns per unit of risk. US Foods Holding is currently generating about -0.05 per unit of risk. If you would invest  178.00  in Innovative Food Hldg on December 29, 2024 and sell it today you would earn a total of  7.00  from holding Innovative Food Hldg or generate 3.93% return on investment over 90 days.

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

Innovative Food Hldg  vs.  US Foods Holding

Innovative Food Hldg

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Innovative Food Hldg are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Innovative Food is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

US Foods Holding

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Innovative Food and US Foods

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

The idea behind Innovative Food Hldg and US Foods Holding 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.