Correlation Between Premier Foods and Branded Legacy

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

Diversification Opportunities for Premier Foods and Branded Legacy

0.69

Correlation Coefficient

Premier Foods  Branded Legacy

Poor diversification

The 3 months correlation between Premier and Branded is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods Plc and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy 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 Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of Premier Foods i.e., Premier Foods and Branded Legacy go up and down completely randomly.

Pair Corralation between Premier Foods and Branded Legacy

Assuming the 90 days horizon Premier Foods is expected to generate 10.13 times less return on investment than Branded Legacy. But when comparing it to its historical volatility, Premier Foods Plc is 9.88 times less risky than Branded Legacy. It trades about 0.07 of its potential returns per unit of risk. Branded Legacy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.90  in Branded Legacy on October 4, 2024 and sell it today you would lose (0.86) from holding Branded Legacy or give up 95.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	75.35%
Values	Daily Returns

Premier Foods Plc  vs.  Branded Legacy

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 latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Branded Legacy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Branded Legacy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Premier Foods and Branded Legacy

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

The idea behind Premier Foods Plc and Branded Legacy 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.