Correlation Between TreeHouse Foods and China Communications

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

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

Diversification Opportunities for TreeHouse Foods and China Communications

0.05

Correlation Coefficient

TreeHouse Foods  China Communications

Significant diversification

The 3 months correlation between TreeHouse and China is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding TreeHouse Foods and China Communications Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Communications 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 China Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Communications has no effect on the direction of TreeHouse Foods i.e., TreeHouse Foods and China Communications go up and down completely randomly.

Pair Corralation between TreeHouse Foods and China Communications

Assuming the 90 days horizon TreeHouse Foods is expected to generate 10.73 times less return on investment than China Communications. In addition to that, TreeHouse Foods is 1.31 times more volatile than China Communications Services. It trades about 0.03 of its total potential returns per unit of risk. China Communications Services is currently generating about 0.37 per unit of volatility. If you would invest  50.00  in China Communications Services on October 4, 2024 and sell it today you would earn a total of  5.00  from holding China Communications Services or generate 10.0% return on investment over 90 days.

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

TreeHouse Foods  vs.  China Communications Services

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.

China Communications

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TreeHouse Foods and China Communications

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

The idea behind TreeHouse Foods and China Communications Services 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.