Correlation Between Premier Foods and Nationwide Building

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

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

Diversification Opportunities for Premier Foods and Nationwide Building

-0.03

Correlation Coefficient

Premier Foods  Nationwide Building

Good diversification

The 3 months correlation between Premier and Nationwide is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods PLC and Nationwide Building Society in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Building and Premier Foods 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 Premier Foods PLC are associated (or correlated) with Nationwide Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Building has no effect on the direction of Premier Foods i.e., Premier Foods and Nationwide Building go up and down completely randomly.

Pair Corralation between Premier Foods and Nationwide Building

Assuming the 90 days trading horizon Premier Foods PLC is expected to under-perform the Nationwide Building. In addition to that, Premier Foods is 4.77 times more volatile than Nationwide Building Society. It trades about -0.04 of its total potential returns per unit of risk. Nationwide Building Society is currently generating about 0.08 per unit of volatility. If you would invest  13,100  in Nationwide Building Society on December 24, 2024 and sell it today you would earn a total of  150.00  from holding Nationwide Building Society or generate 1.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Premier Foods PLC  vs.  Nationwide Building Society

Premier Foods PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premier Foods PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Premier Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nationwide Building

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Building Society are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Nationwide Building is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Premier Foods and Nationwide Building

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

The idea behind Premier Foods PLC and Nationwide Building Society 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.