Correlation Between Premier Foods and NightFood Holdings

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

Diversification Opportunities for Premier Foods and NightFood Holdings

-0.26

Correlation Coefficient

Premier Foods  NightFood Holdings

Very good diversification

The 3 months correlation between Premier and NightFood is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods Plc and NightFood Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NightFood Holdings 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 NightFood Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NightFood Holdings has no effect on the direction of Premier Foods i.e., Premier Foods and NightFood Holdings go up and down completely randomly.

Pair Corralation between Premier Foods and NightFood Holdings

Assuming the 90 days horizon Premier Foods is expected to generate 6.53 times less return on investment than NightFood Holdings. But when comparing it to its historical volatility, Premier Foods Plc is 6.26 times less risky than NightFood Holdings. It trades about 0.09 of its potential returns per unit of risk. NightFood Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.65  in NightFood Holdings on December 30, 2024 and sell it today you would earn a total of  0.19  from holding NightFood Holdings or generate 29.23% 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.  NightFood Holdings

Premier Foods Plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods Plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Premier Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NightFood Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NightFood Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NightFood Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Foods and NightFood Holdings

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

The idea behind Premier Foods Plc and NightFood Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.