Correlation Between Kellogg and Freshpet

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

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

Diversification Opportunities for Kellogg and Freshpet

0.79

Correlation Coefficient

Kellogg  Freshpet

Poor diversification

The 3 months correlation between Kellogg and Freshpet is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Kellogg Company and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet and Kellogg 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 Kellogg Company 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 Kellogg i.e., Kellogg and Freshpet go up and down completely randomly.

Pair Corralation between Kellogg and Freshpet

Assuming the 90 days horizon Kellogg Company is expected to generate 0.7 times more return on investment than Freshpet. However, Kellogg Company is 1.43 times less risky than Freshpet. It trades about 0.18 of its potential returns per unit of risk. Freshpet is currently generating about 0.05 per unit of risk. If you would invest  5,327  in Kellogg Company on September 23, 2024 and sell it today you would earn a total of  2,379  from holding Kellogg Company or generate 44.66% return on investment over 90 days.

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

Kellogg Company  vs.  Freshpet

Kellogg Company

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kellogg Company are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kellogg may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Freshpet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Freshpet is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Kellogg and Freshpet

The main advantage of trading using opposite Kellogg and Freshpet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kellogg 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 Kellogg Company 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.