Correlation Between Tyson Foods and Rave Restaurant

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

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

Diversification Opportunities for Tyson Foods and Rave Restaurant

0.4

Correlation Coefficient

Tyson Foods  Rave Restaurant

Very weak diversification

The 3 months correlation between Tyson and Rave is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group and Tyson 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 Tyson Foods are associated (or correlated) with Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Tyson Foods i.e., Tyson Foods and Rave Restaurant go up and down completely randomly.

Pair Corralation between Tyson Foods and Rave Restaurant

Considering the 90-day investment horizon Tyson Foods is expected to generate 34.45 times less return on investment than Rave Restaurant. But when comparing it to its historical volatility, Tyson Foods is 2.08 times less risky than Rave Restaurant. It trades about 0.0 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  155.00  in Rave Restaurant Group on September 26, 2024 and sell it today you would earn a total of  113.00  from holding Rave Restaurant Group or generate 72.9% return on investment over 90 days.

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

Tyson Foods  vs.  Rave Restaurant Group

Tyson Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Tyson Foods is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Rave Restaurant Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Rave Restaurant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tyson Foods and Rave Restaurant

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

The idea behind Tyson Foods and Rave Restaurant Group 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.