Correlation Between Matco Foods and National Foods

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

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

Diversification Opportunities for Matco Foods and National Foods

0.88

Correlation Coefficient

Matco Foods  National Foods

Very poor diversification

The 3 months correlation between Matco and National is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Matco Foods and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods and Matco 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 Matco Foods are associated (or correlated) with National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Matco Foods i.e., Matco Foods and National Foods go up and down completely randomly.

Pair Corralation between Matco Foods and National Foods

Assuming the 90 days trading horizon Matco Foods is expected to generate 1.37 times more return on investment than National Foods. However, Matco Foods is 1.37 times more volatile than National Foods. It trades about 0.08 of its potential returns per unit of risk. National Foods is currently generating about 0.09 per unit of risk. If you would invest  2,728  in Matco Foods on October 8, 2024 and sell it today you would earn a total of  2,054  from holding Matco Foods or generate 75.29% return on investment over 90 days.

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

Matco Foods  vs.  National Foods

Matco Foods

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Matco Foods reported solid returns over the last few months and may actually be approaching a breakup point.

National Foods

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, National Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Matco Foods and National Foods

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

The idea behind Matco Foods and National Foods 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.