Correlation Between Convenience Foods and Nations Trust

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

By analyzing existing cross correlation between Convenience Foods PLC and Nations Trust Bank, you can compare the effects of market volatilities on Convenience Foods and Nations Trust 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 Convenience Foods with a short position of Nations Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Convenience Foods and Nations Trust.

Diversification Opportunities for Convenience Foods and Nations Trust

0.85

Correlation Coefficient

Convenience Foods  Nations Trust

Very poor diversification

The 3 months correlation between Convenience and Nations is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Convenience Foods PLC and Nations Trust Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nations Trust Bank and Convenience 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 Convenience Foods PLC are associated (or correlated) with Nations Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nations Trust Bank has no effect on the direction of Convenience Foods i.e., Convenience Foods and Nations Trust go up and down completely randomly.

Pair Corralation between Convenience Foods and Nations Trust

Assuming the 90 days trading horizon Convenience Foods PLC is expected to generate 2.77 times more return on investment than Nations Trust. However, Convenience Foods is 2.77 times more volatile than Nations Trust Bank. It trades about 0.22 of its potential returns per unit of risk. Nations Trust Bank is currently generating about 0.17 per unit of risk. If you would invest  92,800  in Convenience Foods PLC on December 5, 2024 and sell it today you would earn a total of  37,200  from holding Convenience Foods PLC or generate 40.09% return on investment over 90 days.

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

Convenience Foods PLC  vs.  Nations Trust Bank

Convenience Foods PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Convenience Foods PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Convenience Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Nations Trust Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nations Trust Bank are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nations Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Convenience Foods and Nations Trust

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

The idea behind Convenience Foods PLC and Nations Trust Bank 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.