Correlation Between Performance Food and Brown Forman

Can any of the company-specific risk be diversified away by investing in both Performance Food and Brown Forman 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 Brown Forman 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 Brown Forman, you can compare the effects of market volatilities on Performance Food and Brown Forman 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 Brown Forman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Performance Food and Brown Forman.

Diversification Opportunities for Performance Food and Brown Forman

-0.45

Correlation Coefficient

Performance Food  Brown Forman

Very good diversification

The 3 months correlation between Performance and Brown is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Performance Food Group and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman 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 Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Performance Food i.e., Performance Food and Brown Forman go up and down completely randomly.

Pair Corralation between Performance Food and Brown Forman

Assuming the 90 days trading horizon Performance Food Group is expected to generate 0.95 times more return on investment than Brown Forman. However, Performance Food Group is 1.06 times less risky than Brown Forman. It trades about 0.06 of its potential returns per unit of risk. Brown Forman is currently generating about -0.07 per unit of risk. If you would invest  5,600  in Performance Food Group on October 26, 2024 and sell it today you would earn a total of  2,750  from holding Performance Food Group or generate 49.11% return on investment over 90 days.

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

Performance Food Group  vs.  Brown Forman

Performance Food

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Performance Food Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Performance Food may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Performance Food and Brown Forman

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

The idea behind Performance Food Group and Brown Forman 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.