Correlation Between US FOODS and PennantPark Investment
Can any of the company-specific risk be diversified away by investing in both US FOODS and PennantPark Investment 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 US FOODS and PennantPark Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US FOODS HOLDING and PennantPark Investment, you can compare the effects of market volatilities on US FOODS and PennantPark Investment 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 US FOODS with a short position of PennantPark Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of US FOODS and PennantPark Investment.
Diversification Opportunities for US FOODS and PennantPark Investment
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between UFH and PennantPark is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding US FOODS HOLDING and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment and US 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 US FOODS HOLDING are associated (or correlated) with PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of US FOODS i.e., US FOODS and PennantPark Investment go up and down completely randomly.
Pair Corralation between US FOODS and PennantPark Investment
Assuming the 90 days trading horizon US FOODS is expected to generate 1.05 times less return on investment than PennantPark Investment. But when comparing it to its historical volatility, US FOODS HOLDING is 1.95 times less risky than PennantPark Investment. It trades about 0.12 of its potential returns per unit of risk. PennantPark Investment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 660.00 in PennantPark Investment on October 25, 2024 and sell it today you would earn a total of 14.00 from holding PennantPark Investment or generate 2.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
US FOODS HOLDING vs. PennantPark Investment
Performance |
| Timeline |
| US FOODS HOLDING |
| PennantPark Investment |
US FOODS and PennantPark Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US FOODS and PennantPark Investment
The main advantage of trading using opposite US FOODS and PennantPark Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US FOODS position performs unexpectedly, PennantPark Investment 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 PennantPark Investment will offset losses from the drop in PennantPark Investment's long position.The idea behind US FOODS HOLDING and PennantPark Investment 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.| PennantPark Investment vs. Heidelberg Materials AG | PennantPark Investment vs. PICKN PAY STORES | PennantPark Investment vs. Rayonier Advanced Materials | PennantPark Investment vs. COSTCO WHOLESALE CDR |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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