Correlation Between Performance Food and Tyson Foods

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

Diversification Opportunities for Performance Food and Tyson Foods

-0.02

Correlation Coefficient

Performance Food  Tyson Foods

Good diversification

The 3 months correlation between Performance and Tyson is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Performance Food Group and Tyson Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tyson Foods 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 Tyson Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tyson Foods has no effect on the direction of Performance Food i.e., Performance Food and Tyson Foods go up and down completely randomly.

Pair Corralation between Performance Food and Tyson Foods

Assuming the 90 days trading horizon Performance Food Group is expected to generate about the same return on investment as Tyson Foods. But, Performance Food Group is 1.17 times less risky than Tyson Foods. It trades about -0.06 of its potential returns per unit of risk. Tyson Foods is currently generating about -0.05 per unit of risk. If you would invest  6,136  in Tyson Foods on November 29, 2024 and sell it today you would lose (309.00) from holding Tyson Foods or give up 5.04% of portfolio value over 90 days.

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

Performance Food Group  vs.  Tyson Foods

Performance Food

Risk-Adjusted Performance

Very Weak

Over the last 90 days Performance Food Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Performance Food is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tyson Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tyson Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Performance Food and Tyson Foods

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

The idea behind Performance Food Group and Tyson Foods 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.