Correlation Between Gourmet Master and Louisa Professional
Can any of the company-specific risk be diversified away by investing in both Gourmet Master and Louisa Professional 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 Gourmet Master and Louisa Professional into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gourmet Master Co and Louisa Professional Coffee, you can compare the effects of market volatilities on Gourmet Master and Louisa Professional 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 Gourmet Master with a short position of Louisa Professional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gourmet Master and Louisa Professional.
Diversification Opportunities for Gourmet Master and Louisa Professional
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Gourmet and Louisa is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Gourmet Master Co and Louisa Professional Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Louisa Professional and Gourmet Master 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 Gourmet Master Co are associated (or correlated) with Louisa Professional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Louisa Professional has no effect on the direction of Gourmet Master i.e., Gourmet Master and Louisa Professional go up and down completely randomly.
Pair Corralation between Gourmet Master and Louisa Professional
Assuming the 90 days trading horizon Gourmet Master Co is expected to under-perform the Louisa Professional. In addition to that, Gourmet Master is 1.26 times more volatile than Louisa Professional Coffee. It trades about -0.03 of its total potential returns per unit of risk. Louisa Professional Coffee is currently generating about -0.03 per unit of volatility. If you would invest 11,671 in Louisa Professional Coffee on November 4, 2024 and sell it today you would lose (2,441) from holding Louisa Professional Coffee or give up 20.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gourmet Master Co vs. Louisa Professional Coffee
Performance |
| Timeline |
| Gourmet Master |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
| Louisa Professional |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Gourmet Master and Louisa Professional Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gourmet Master and Louisa Professional
The main advantage of trading using opposite Gourmet Master and Louisa Professional positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gourmet Master position performs unexpectedly, Louisa Professional 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 Louisa Professional will offset losses from the drop in Louisa Professional's long position.The idea behind Gourmet Master Co and Louisa Professional Coffee 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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