Correlation Between Premier Foods and Cboe UK

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Can any of the company-specific risk be diversified away by investing in both Premier Foods and Cboe UK 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 Premier Foods and Cboe UK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Premier Foods PLC and Cboe UK Healthcare, you can compare the effects of market volatilities on Premier Foods and Cboe UK 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 Premier Foods with a short position of Cboe UK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premier Foods and Cboe UK.

Diversification Opportunities for Premier Foods and Cboe UK

-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Premier and Cboe is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods PLC and Cboe UK Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe UK Healthcare and Premier Foods 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 Premier Foods PLC are associated (or correlated) with Cboe UK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe UK Healthcare has no effect on the direction of Premier Foods i.e., Premier Foods and Cboe UK go up and down completely randomly.
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Pair Corralation between Premier Foods and Cboe UK

Assuming the 90 days trading horizon Premier Foods PLC is expected to generate 1.27 times more return on investment than Cboe UK. However, Premier Foods is 1.27 times more volatile than Cboe UK Healthcare. It trades about 0.09 of its potential returns per unit of risk. Cboe UK Healthcare is currently generating about -0.01 per unit of risk. If you would invest  12,818  in Premier Foods PLC on August 31, 2024 and sell it today you would earn a total of  6,742  from holding Premier Foods PLC or generate 52.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy98.95%
ValuesDaily Returns

Premier Foods PLC  vs.  Cboe UK Healthcare

 Performance 
       Timeline  

Premier Foods and Cboe UK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Premier Foods and Cboe UK

The main advantage of trading using opposite Premier Foods and Cboe UK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premier Foods position performs unexpectedly, Cboe UK 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 Cboe UK will offset losses from the drop in Cboe UK's long position.
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The idea behind Premier Foods PLC and Cboe UK Healthcare 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.
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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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