Correlation Between Convenience Foods and Palm Garden

Can any of the company-specific risk be diversified away by investing in both Convenience Foods and Palm 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 Convenience Foods and Palm Garden 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 Palm Garden Hotels, you can compare the effects of market volatilities on Convenience Foods and Palm 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 Convenience Foods with a short position of Palm Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Convenience Foods and Palm Garden.

Diversification Opportunities for Convenience Foods and Palm Garden

-0.08

Correlation Coefficient

Convenience Foods  Palm Garden

Good diversification

The 3 months correlation between Convenience and Palm is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Convenience Foods PLC and Palm Garden Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palm Garden Hotels 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 Palm Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palm Garden Hotels has no effect on the direction of Convenience Foods i.e., Convenience Foods and Palm Garden go up and down completely randomly.

Pair Corralation between Convenience Foods and Palm Garden

Assuming the 90 days trading horizon Convenience Foods PLC is expected to generate 1.01 times more return on investment than Palm Garden. However, Convenience Foods is 1.01 times more volatile than Palm Garden Hotels. It trades about 0.14 of its potential returns per unit of risk. Palm Garden Hotels is currently generating about -0.04 per unit of risk. If you would invest  98,650  in Convenience Foods PLC on December 28, 2024 and sell it today you would earn a total of  29,175  from holding Convenience Foods PLC or generate 29.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Convenience Foods PLC  vs.  Palm Garden Hotels

Convenience Foods PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Convenience Foods PLC are ranked lower than 10 (%) 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.

Palm Garden Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Palm Garden Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Convenience Foods and Palm Garden

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

The idea behind Convenience Foods PLC and Palm Garden Hotels 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.