Correlation Between Sovos Brands and Central Garden

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

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

Diversification Opportunities for Sovos Brands and Central Garden

0.09

Correlation Coefficient

Sovos Brands  Central Garden

Significant diversification

The 3 months correlation between Sovos and Central is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Sovos Brands 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 Sovos Brands 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 Sovos Brands 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 Sovos Brands i.e., Sovos Brands and Central Garden go up and down completely randomly.

Pair Corralation between Sovos Brands and Central Garden

If you would invest  3,176  in Central Garden Pet on September 19, 2024 and sell it today you would earn a total of  472.50  from holding Central Garden Pet or generate 14.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

Sovos Brands  vs.  Central Garden Pet

Sovos Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sovos Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Sovos Brands is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Central Garden Pet

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sovos Brands and Central Garden

The main advantage of trading using opposite Sovos Brands and Central Garden positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sovos Brands 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 Sovos Brands 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.

Check out your portfolio center.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.