Correlation Between TreeHouse Foods and Broadwind

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

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

Diversification Opportunities for TreeHouse Foods and Broadwind

0.85

Correlation Coefficient

TreeHouse Foods  Broadwind

Very poor diversification

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

Pair Corralation between TreeHouse Foods and Broadwind

Assuming the 90 days horizon TreeHouse Foods is expected to generate 0.69 times more return on investment than Broadwind. However, TreeHouse Foods is 1.45 times less risky than Broadwind. It trades about 0.03 of its potential returns per unit of risk. Broadwind is currently generating about 0.0 per unit of risk. If you would invest  3,340  in TreeHouse Foods on October 4, 2024 and sell it today you would earn a total of  20.00  from holding TreeHouse Foods or generate 0.6% return on investment over 90 days.

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

TreeHouse Foods  vs.  Broadwind

TreeHouse Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TreeHouse Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TreeHouse Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Broadwind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadwind has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Broadwind is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TreeHouse Foods and Broadwind

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

The idea behind TreeHouse Foods and Broadwind 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.