Correlation Between Global Health and Heritage Foods

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

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

Diversification Opportunities for Global Health and Heritage Foods

-0.6

Correlation Coefficient

Global Health  Heritage Foods

Excellent diversification

The 3 months correlation between Global and Heritage is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Global Health Limited and Heritage Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Foods and Global Health 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 Global Health Limited are associated (or correlated) with Heritage Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Foods has no effect on the direction of Global Health i.e., Global Health and Heritage Foods go up and down completely randomly.

Pair Corralation between Global Health and Heritage Foods

Assuming the 90 days trading horizon Global Health is expected to generate 1.9 times less return on investment than Heritage Foods. But when comparing it to its historical volatility, Global Health Limited is 1.39 times less risky than Heritage Foods. It trades about 0.07 of its potential returns per unit of risk. Heritage Foods Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  21,528  in Heritage Foods Limited on October 4, 2024 and sell it today you would earn a total of  26,927  from holding Heritage Foods Limited or generate 125.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.45%
Values	Daily Returns

Global Health Limited  vs.  Heritage Foods Limited

Global Health Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Health Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Global Health may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Heritage Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Global Health and Heritage Foods

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

The idea behind Global Health Limited and Heritage Foods Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.