Correlation Between Performance Food and Tile Shop

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

By analyzing existing cross correlation between Performance Food Group and Tile Shop Holdings, you can compare the effects of market volatilities on Performance Food and Tile Shop 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 Performance Food with a short position of Tile Shop. Check out your portfolio center. Please also check ongoing floating volatility patterns of Performance Food and Tile Shop.

Diversification Opportunities for Performance Food and Tile Shop

0.83

Correlation Coefficient

Performance Food  Tile Shop

Very poor diversification

The 3 months correlation between Performance and Tile is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Performance Food Group and Tile Shop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tile Shop Holdings and Performance Food 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 Performance Food Group are associated (or correlated) with Tile Shop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tile Shop Holdings has no effect on the direction of Performance Food i.e., Performance Food and Tile Shop go up and down completely randomly.

Pair Corralation between Performance Food and Tile Shop

Assuming the 90 days trading horizon Performance Food Group is expected to generate 0.66 times more return on investment than Tile Shop. However, Performance Food Group is 1.52 times less risky than Tile Shop. It trades about 0.29 of its potential returns per unit of risk. Tile Shop Holdings is currently generating about 0.12 per unit of risk. If you would invest  6,550  in Performance Food Group on September 4, 2024 and sell it today you would earn a total of  1,900  from holding Performance Food Group or generate 29.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Performance Food Group  vs.  Tile Shop Holdings

Performance Food

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Performance Food Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Performance Food unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tile Shop Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tile Shop Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tile Shop reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Performance Food and Tile Shop

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

The idea behind Performance Food Group and Tile Shop 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.