Correlation Between Nomad Foods and Central Garden

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

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

Diversification Opportunities for Nomad Foods and Central Garden

0.22

Correlation Coefficient

Nomad Foods  Central Garden

Modest diversification

The 3 months correlation between Nomad and Central is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nomad Foods and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet and Nomad 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 Nomad Foods are associated (or correlated) with Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of Nomad Foods i.e., Nomad Foods and Central Garden go up and down completely randomly.

Pair Corralation between Nomad Foods and Central Garden

Given the investment horizon of 90 days Nomad Foods is expected to generate 0.73 times more return on investment than Central Garden. However, Nomad Foods is 1.36 times less risky than Central Garden. It trades about 0.06 of its potential returns per unit of risk. Central Garden Pet is currently generating about -0.08 per unit of risk. If you would invest  1,814  in Nomad Foods on November 28, 2024 and sell it today you would earn a total of  92.00  from holding Nomad Foods or generate 5.07% return on investment over 90 days.

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

Nomad Foods  vs.  Central Garden Pet

Nomad Foods

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Nomad Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Central Garden Pet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Nomad Foods and Central Garden

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

The idea behind Nomad Foods and Central Garden Pet 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.