Correlation Between Coffee Holding and Lancaster Colony

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

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

Diversification Opportunities for Coffee Holding and Lancaster Colony

0.79

Correlation Coefficient

Coffee Holding  Lancaster Colony

Poor diversification

The 3 months correlation between Coffee and Lancaster is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and Lancaster Colony in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancaster Colony and Coffee Holding 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 Coffee Holding Co are associated (or correlated) with Lancaster Colony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancaster Colony has no effect on the direction of Coffee Holding i.e., Coffee Holding and Lancaster Colony go up and down completely randomly.

Pair Corralation between Coffee Holding and Lancaster Colony

Considering the 90-day investment horizon Coffee Holding Co is expected to generate 4.45 times more return on investment than Lancaster Colony. However, Coffee Holding is 4.45 times more volatile than Lancaster Colony. It trades about 0.02 of its potential returns per unit of risk. Lancaster Colony is currently generating about 0.03 per unit of risk. If you would invest  356.00  in Coffee Holding Co on December 29, 2024 and sell it today you would lose (32.00) from holding Coffee Holding Co or give up 8.99% of portfolio value over 90 days.

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

Coffee Holding Co  vs.  Lancaster Colony

Coffee Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coffee Holding may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lancaster Colony

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lancaster Colony are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lancaster Colony is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Coffee Holding and Lancaster Colony

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

The idea behind Coffee Holding Co and Lancaster Colony 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..