Correlation Between Premier Foods and Trainline Plc

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

Diversification Opportunities for Premier Foods and Trainline Plc

-0.15

Correlation Coefficient

Premier Foods  Trainline Plc

Good diversification

The 3 months correlation between Premier and Trainline is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods PLC and Trainline Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trainline Plc 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 Trainline Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trainline Plc has no effect on the direction of Premier Foods i.e., Premier Foods and Trainline Plc go up and down completely randomly.

Pair Corralation between Premier Foods and Trainline Plc

Assuming the 90 days trading horizon Premier Foods PLC is expected to under-perform the Trainline Plc. But the stock apears to be less risky and, when comparing its historical volatility, Premier Foods PLC is 2.1 times less risky than Trainline Plc. The stock trades about -0.08 of its potential returns per unit of risk. The Trainline Plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  33,640  in Trainline Plc on October 23, 2024 and sell it today you would earn a total of  4,020  from holding Trainline Plc or generate 11.95% return on investment over 90 days.

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

Premier Foods PLC  vs.  Trainline Plc

Premier Foods PLC

Risk-Adjusted Performance

0 of 100

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Trainline Plc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trainline Plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trainline Plc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Foods and Trainline Plc

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

The idea behind Premier Foods PLC and Trainline 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..