Correlation Between Treehouse Foods and Freshpet

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

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

Diversification Opportunities for Treehouse Foods and Freshpet

-0.65

Correlation Coefficient

Treehouse Foods  Freshpet

Excellent diversification

The 3 months correlation between Treehouse and Freshpet is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Treehouse Foods and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Treehouse Foods i.e., Treehouse Foods and Freshpet go up and down completely randomly.

Pair Corralation between Treehouse Foods and Freshpet

Considering the 90-day investment horizon Treehouse Foods is expected to under-perform the Freshpet. In addition to that, Treehouse Foods is 1.15 times more volatile than Freshpet. It trades about -0.13 of its total potential returns per unit of risk. Freshpet is currently generating about 0.04 per unit of volatility. If you would invest  14,092  in Freshpet on September 18, 2024 and sell it today you would earn a total of  614.00  from holding Freshpet or generate 4.36% return on investment over 90 days.

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

Treehouse Foods  vs.  Freshpet

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. In spite of unsteady performance in the last few months, the Stock's technical indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Freshpet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Freshpet is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Treehouse Foods and Freshpet

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

The idea behind Treehouse Foods and Freshpet 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.