Correlation Between Kellogg and Premier Foods
Can any of the company-specific risk be diversified away by investing in both Kellogg and Premier 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 Kellogg and Premier Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kellogg Company and Premier Foods PLC, you can compare the effects of market volatilities on Kellogg and Premier 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 Kellogg with a short position of Premier Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kellogg and Premier Foods.
Diversification Opportunities for Kellogg and Premier Foods
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Kellogg and Premier is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Kellogg Company and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods PLC and Kellogg 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 Kellogg Company are associated (or correlated) with Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of Kellogg i.e., Kellogg and Premier Foods go up and down completely randomly.
Pair Corralation between Kellogg and Premier Foods
Assuming the 90 days horizon Kellogg is expected to generate 1.08 times less return on investment than Premier Foods. But when comparing it to its historical volatility, Kellogg Company is 1.03 times less risky than Premier Foods. It trades about 0.12 of its potential returns per unit of risk. Premier Foods PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 132.00 in Premier Foods PLC on September 4, 2024 and sell it today you would earn a total of 96.00 from holding Premier Foods PLC or generate 72.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kellogg Company vs. Premier Foods PLC
Performance |
| Timeline |
| Kellogg Company |
| Premier Foods PLC |
Kellogg and Premier Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kellogg and Premier Foods
The main advantage of trading using opposite Kellogg and Premier Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kellogg position performs unexpectedly, Premier 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 Premier Foods will offset losses from the drop in Premier Foods' long position.The idea behind Kellogg Company and Premier Foods PLC 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.| Premier Foods vs. Nestl SA | Premier Foods vs. Kraft Heinz Co | Premier Foods vs. General Mills | Premier Foods vs. Kellogg Company |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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