Correlation Between Post Holdings and Central Garden

Can any of the company-specific risk be diversified away by investing in both Post Holdings and Central Garden 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 Post Holdings and Central Garden into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Post Holdings and Central Garden Pet, you can compare the effects of market volatilities on Post Holdings and Central Garden 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 Post Holdings with a short position of Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Post Holdings and Central Garden.

Diversification Opportunities for Post Holdings and Central Garden

0.65

Correlation Coefficient

Post Holdings  Central Garden

Poor diversification

The 3 months correlation between Post and Central is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Post Holdings and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet and Post Holdings 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 Post Holdings are associated (or correlated) with Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of Post Holdings i.e., Post Holdings and Central Garden go up and down completely randomly.

Pair Corralation between Post Holdings and Central Garden

Given the investment horizon of 90 days Post Holdings is expected to generate 1.26 times less return on investment than Central Garden. But when comparing it to its historical volatility, Post Holdings is 1.73 times less risky than Central Garden. It trades about 0.03 of its potential returns per unit of risk. Central Garden Pet is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,312  in Central Garden Pet on October 23, 2024 and sell it today you would earn a total of  386.00  from holding Central Garden Pet or generate 11.65% return on investment over 90 days.

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

Post Holdings  vs.  Central Garden Pet

Post Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Central Garden Pet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Post Holdings and Central Garden

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

The idea behind Post Holdings and Central Garden Pet 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.