Correlation Between Sea and Primo Brands

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

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

Diversification Opportunities for Sea and Primo Brands

0.88

Correlation Coefficient

Sea  Primo Brands

Very poor diversification

The 3 months correlation between Sea and Primo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Primo Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primo Brands and Sea 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 Sea are associated (or correlated) with Primo Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primo Brands has no effect on the direction of Sea i.e., Sea and Primo Brands go up and down completely randomly.

Pair Corralation between Sea and Primo Brands

Allowing for the 90-day total investment horizon Sea is expected to under-perform the Primo Brands. But the stock apears to be less risky and, when comparing its historical volatility, Sea is 1.14 times less risky than Primo Brands. The stock trades about -0.08 of its potential returns per unit of risk. The Primo Brands is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,822  in Primo Brands on September 21, 2024 and sell it today you would earn a total of  283.50  from holding Primo Brands or generate 10.05% return on investment over 90 days.

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

Sea  vs.  Primo Brands

Sea

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Primo Brands

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Primo Brands are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Primo Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sea and Primo Brands

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

The idea behind Sea and Primo Brands 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.