Correlation Between SM Investments and Bridgford Foods

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

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

Diversification Opportunities for SM Investments and Bridgford Foods

0.2

Correlation Coefficient

SM Investments  Bridgford Foods

Modest diversification

The 3 months correlation between SVTMF and Bridgford is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments and Bridgford Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgford Foods and SM Investments 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 SM Investments are associated (or correlated) with Bridgford Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgford Foods has no effect on the direction of SM Investments i.e., SM Investments and Bridgford Foods go up and down completely randomly.

Pair Corralation between SM Investments and Bridgford Foods

Assuming the 90 days horizon SM Investments is expected to generate 3.66 times less return on investment than Bridgford Foods. But when comparing it to its historical volatility, SM Investments is 1.01 times less risky than Bridgford Foods. It trades about 0.07 of its potential returns per unit of risk. Bridgford Foods is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  976.00  in Bridgford Foods on October 10, 2024 and sell it today you would earn a total of  104.00  from holding Bridgford Foods or generate 10.66% return on investment over 90 days.

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

SM Investments  vs.  Bridgford Foods

SM Investments

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Bridgford Foods

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgford Foods are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Bridgford Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Investments and Bridgford Foods

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

The idea behind SM Investments and Bridgford Foods 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.