Correlation Between US FOODS and PREMIER FOODS

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

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

Diversification Opportunities for US FOODS and PREMIER FOODS

-0.12

Correlation Coefficient

US FOODS  PREMIER FOODS

Good diversification

The 3 months correlation between UFH and PREMIER is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding US FOODS HOLDING and PREMIER FOODS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PREMIER FOODS and US 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 US FOODS HOLDING are associated (or correlated) with PREMIER FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PREMIER FOODS has no effect on the direction of US FOODS i.e., US FOODS and PREMIER FOODS go up and down completely randomly.

Pair Corralation between US FOODS and PREMIER FOODS

Assuming the 90 days trading horizon US FOODS HOLDING is expected to generate 1.04 times more return on investment than PREMIER FOODS. However, US FOODS is 1.04 times more volatile than PREMIER FOODS. It trades about 0.09 of its potential returns per unit of risk. PREMIER FOODS is currently generating about 0.08 per unit of risk. If you would invest  3,640  in US FOODS HOLDING on October 23, 2024 and sell it today you would earn a total of  2,960  from holding US FOODS HOLDING or generate 81.32% return on investment over 90 days.

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

US FOODS HOLDING  vs.  PREMIER FOODS

US FOODS HOLDING

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US FOODS HOLDING are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, US FOODS exhibited solid returns over the last few months and may actually be approaching a breakup point.

PREMIER FOODS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PREMIER FOODS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with US FOODS and PREMIER FOODS

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

The idea behind US FOODS HOLDING and PREMIER 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.