Correlation Between Nomad Foods and Darling Ingredients

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

By analyzing existing cross correlation between Nomad Foods and Darling Ingredients, you can compare the effects of market volatilities on Nomad Foods and Darling Ingredients 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 Darling Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nomad Foods and Darling Ingredients.

Diversification Opportunities for Nomad Foods and Darling Ingredients

0.27

Correlation Coefficient

Nomad Foods  Darling Ingredients

Modest diversification

The 3 months correlation between Nomad and Darling is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Nomad Foods and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients 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 Darling Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darling Ingredients has no effect on the direction of Nomad Foods i.e., Nomad Foods and Darling Ingredients go up and down completely randomly.

Pair Corralation between Nomad Foods and Darling Ingredients

Given the investment horizon of 90 days Nomad Foods is expected to under-perform the Darling Ingredients. But the stock apears to be less risky and, when comparing its historical volatility, Nomad Foods is 1.46 times less risky than Darling Ingredients. The stock trades about -0.03 of its potential returns per unit of risk. The Darling Ingredients is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,819  in Darling Ingredients on October 21, 2024 and sell it today you would lose (155.00) from holding Darling Ingredients or give up 4.06% of portfolio value over 90 days.

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

Nomad Foods  vs.  Darling Ingredients

Nomad Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nomad Foods has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Darling Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darling Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Nomad Foods and Darling Ingredients

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

The idea behind Nomad Foods and Darling Ingredients 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.