Correlation Between Treehouse Foods and Lifeway Foods

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

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

Diversification Opportunities for Treehouse Foods and Lifeway Foods

0.54

Correlation Coefficient

Treehouse Foods  Lifeway Foods

Very weak diversification

The 3 months correlation between Treehouse and Lifeway is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Treehouse Foods and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Treehouse Foods i.e., Treehouse Foods and Lifeway Foods go up and down completely randomly.

Pair Corralation between Treehouse Foods and Lifeway Foods

Considering the 90-day investment horizon Treehouse Foods is expected to generate 1.0 times more return on investment than Lifeway Foods. However, Treehouse Foods is 1.0 times less risky than Lifeway Foods. It trades about -0.08 of its potential returns per unit of risk. Lifeway Foods is currently generating about -0.1 per unit of risk. If you would invest  3,510  in Treehouse Foods on December 1, 2024 and sell it today you would lose (362.00) from holding Treehouse Foods or give up 10.31% of portfolio value over 90 days.

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

Treehouse Foods  vs.  Lifeway Foods

Treehouse Foods

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's technical indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Lifeway Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lifeway Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Treehouse Foods and Lifeway Foods

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

The idea behind Treehouse Foods and Lifeway 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.