Correlation Between EX PACK and Convenience Foods

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

By analyzing existing cross correlation between EX PACK RUGATED CARTONS and Convenience Foods PLC, you can compare the effects of market volatilities on EX PACK and Convenience 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 EX PACK with a short position of Convenience Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of EX PACK and Convenience Foods.

Diversification Opportunities for EX PACK and Convenience Foods

0.75

Correlation Coefficient

EX PACK  Convenience Foods

Poor diversification

The 3 months correlation between PACKN0000 and Convenience is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding EX PACK RUGATED CARTONS and Convenience Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Convenience Foods PLC and EX PACK 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 EX PACK RUGATED CARTONS are associated (or correlated) with Convenience Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Convenience Foods PLC has no effect on the direction of EX PACK i.e., EX PACK and Convenience Foods go up and down completely randomly.

Pair Corralation between EX PACK and Convenience Foods

Assuming the 90 days trading horizon EX PACK RUGATED CARTONS is expected to under-perform the Convenience Foods. But the stock apears to be less risky and, when comparing its historical volatility, EX PACK RUGATED CARTONS is 1.87 times less risky than Convenience Foods. The stock trades about -0.27 of its potential returns per unit of risk. The Convenience Foods PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  95,000  in Convenience Foods PLC on October 23, 2024 and sell it today you would earn a total of  5,500  from holding Convenience Foods PLC or generate 5.79% return on investment over 90 days.

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

EX PACK RUGATED CARTONS  vs.  Convenience Foods PLC

EX PACK RUGATED

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EX PACK RUGATED CARTONS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EX PACK sustained solid returns over the last few months and may actually be approaching a breakup point.

Convenience Foods PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Convenience Foods PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Convenience Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EX PACK and Convenience Foods

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

The idea behind EX PACK RUGATED CARTONS and Convenience Foods PLC 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.