Correlation Between North West and Premium Brands

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

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

Diversification Opportunities for North West and Premium Brands

0.46

Correlation Coefficient

North West  Premium Brands

Very weak diversification

The 3 months correlation between North and Premium is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding North West and Premium Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Brands Holdings and North West 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 North West are associated (or correlated) with Premium Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Brands Holdings has no effect on the direction of North West i.e., North West and Premium Brands go up and down completely randomly.

Pair Corralation between North West and Premium Brands

Assuming the 90 days trading horizon North West is expected to generate 0.92 times more return on investment than Premium Brands. However, North West is 1.08 times less risky than Premium Brands. It trades about 0.01 of its potential returns per unit of risk. Premium Brands Holdings is currently generating about 0.01 per unit of risk. If you would invest  4,890  in North West on December 30, 2024 and sell it today you would earn a total of  20.00  from holding North West or generate 0.41% return on investment over 90 days.

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

North West  vs.  Premium Brands Holdings

North West

Risk-Adjusted Performance

Very Weak

Over the last 90 days North West has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, North West is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Premium Brands Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premium Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Premium Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with North West and Premium Brands

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

The idea behind North West and Premium Brands Holdings 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.