Correlation Between Food Life and ScanSource
Can any of the company-specific risk be diversified away by investing in both Food Life and ScanSource 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 Food Life and ScanSource into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Food Life Companies and ScanSource, you can compare the effects of market volatilities on Food Life and ScanSource 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 Food Life with a short position of ScanSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and ScanSource.
Diversification Opportunities for Food Life and ScanSource
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Food and ScanSource is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and Food Life 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 Food Life Companies are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of Food Life i.e., Food Life and ScanSource go up and down completely randomly.
Pair Corralation between Food Life and ScanSource
Assuming the 90 days horizon Food Life Companies is expected to generate 0.64 times more return on investment than ScanSource. However, Food Life Companies is 1.57 times less risky than ScanSource. It trades about 0.37 of its potential returns per unit of risk. ScanSource is currently generating about 0.24 per unit of risk. If you would invest 1,810 in Food Life Companies on September 1, 2024 and sell it today you would earn a total of 330.00 from holding Food Life Companies or generate 18.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Food Life Companies vs. ScanSource
Performance |
| Timeline |
| Food Life Companies |
| ScanSource |
Food Life and ScanSource Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Food Life and ScanSource
The main advantage of trading using opposite Food Life and ScanSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Food Life position performs unexpectedly, ScanSource 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 ScanSource will offset losses from the drop in ScanSource's long position.The idea behind Food Life Companies and ScanSource 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.| ScanSource vs. EAGLE MATERIALS | ScanSource vs. Martin Marietta Materials | ScanSource vs. Magnachip Semiconductor | ScanSource vs. Mitsubishi Materials |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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