Correlation Between United Natural and Lifeway Foods

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

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

Diversification Opportunities for United Natural and Lifeway Foods

-0.44

Correlation Coefficient

United Natural  Lifeway Foods

Very good diversification

The 3 months correlation between United and Lifeway is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding United Natural Foods and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods and United Natural 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 United Natural 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 United Natural i.e., United Natural and Lifeway Foods go up and down completely randomly.

Pair Corralation between United Natural and Lifeway Foods

Assuming the 90 days horizon United Natural is expected to generate 1.41 times less return on investment than Lifeway Foods. But when comparing it to its historical volatility, United Natural Foods is 1.34 times less risky than Lifeway Foods. It trades about 0.07 of its potential returns per unit of risk. Lifeway Foods is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,080  in Lifeway Foods on October 5, 2024 and sell it today you would earn a total of  1,320  from holding Lifeway Foods or generate 122.22% return on investment over 90 days.

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

United Natural Foods  vs.  Lifeway Foods

United Natural Foods

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days United Natural Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, United Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Lifeway Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifeway Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lifeway Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United Natural and Lifeway Foods

The main advantage of trading using opposite United Natural and Lifeway Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Natural 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 United Natural 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.