Correlation Between US Foods and Align Technology

Can any of the company-specific risk be diversified away by investing in both US Foods and Align Technology 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 Align Technology 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 Align Technology, you can compare the effects of market volatilities on US Foods and Align Technology 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 Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Foods and Align Technology.

Diversification Opportunities for US Foods and Align Technology

0.65

Correlation Coefficient

US Foods  Align Technology

Poor diversification

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

Pair Corralation between US Foods and Align Technology

Assuming the 90 days trading horizon US Foods Holding is expected to generate 0.5 times more return on investment than Align Technology. However, US Foods Holding is 1.98 times less risky than Align Technology. It trades about 0.1 of its potential returns per unit of risk. Align Technology is currently generating about 0.01 per unit of risk. If you would invest  3,320  in US Foods Holding on October 12, 2024 and sell it today you would earn a total of  3,230  from holding US Foods Holding or generate 97.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

US Foods Holding  vs.  Align Technology

US Foods Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Foods Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, US Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Align Technology is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with US Foods and Align Technology

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

The idea behind US Foods Holding and Align Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.