Correlation Between SPARTAN STORES and US Foods

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

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

Diversification Opportunities for SPARTAN STORES and US Foods

-0.45

Correlation Coefficient

SPARTAN STORES  US Foods

Very good diversification

The 3 months correlation between SPARTAN and UFH is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SPARTAN STORES and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding and SPARTAN STORES 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 SPARTAN STORES are associated (or correlated) with US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of SPARTAN STORES i.e., SPARTAN STORES and US Foods go up and down completely randomly.

Pair Corralation between SPARTAN STORES and US Foods

Assuming the 90 days trading horizon SPARTAN STORES is expected to under-perform the US Foods. In addition to that, SPARTAN STORES is 1.25 times more volatile than US Foods Holding. It trades about -0.03 of its total potential returns per unit of risk. US Foods Holding is currently generating about 0.1 per unit of volatility. If you would invest  3,220  in US Foods Holding on October 9, 2024 and sell it today you would earn a total of  3,380  from holding US Foods Holding or generate 104.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

SPARTAN STORES  vs.  US Foods Holding

SPARTAN STORES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPARTAN STORES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, SPARTAN STORES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

US Foods Holding

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Foods Holding are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, US Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPARTAN STORES and US Foods

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

The idea behind SPARTAN STORES and US Foods Holding 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.