Correlation Between Cult Food and Branded Legacy
Can any of the company-specific risk be diversified away by investing in both Cult Food and Branded Legacy 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 Cult Food and Branded Legacy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cult Food Science and Branded Legacy, you can compare the effects of market volatilities on Cult Food and Branded Legacy 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 Cult Food with a short position of Branded Legacy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cult Food and Branded Legacy.
Diversification Opportunities for Cult Food and Branded Legacy
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cult and Branded is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Cult Food Science and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy and Cult Food 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 Cult Food Science are associated (or correlated) with Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of Cult Food i.e., Cult Food and Branded Legacy go up and down completely randomly.
Pair Corralation between Cult Food and Branded Legacy
Assuming the 90 days horizon Cult Food is expected to generate 2.6 times less return on investment than Branded Legacy. But when comparing it to its historical volatility, Cult Food Science is 1.75 times less risky than Branded Legacy. It trades about 0.04 of its potential returns per unit of risk. Branded Legacy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.30 in Branded Legacy on September 2, 2024 and sell it today you would lose (0.20) from holding Branded Legacy or give up 66.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cult Food Science vs. Branded Legacy
Performance |
| Timeline |
| Cult Food Science |
| Branded Legacy |
Cult Food and Branded Legacy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cult Food and Branded Legacy
The main advantage of trading using opposite Cult Food and Branded Legacy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cult Food position performs unexpectedly, Branded Legacy 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 Branded Legacy will offset losses from the drop in Branded Legacy's long position.The idea behind Cult Food Science and Branded Legacy 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.| Branded Legacy vs. The A2 Milk | Branded Legacy vs. Artisan Consumer Goods | Branded Legacy vs. General Mills |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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