Correlation Between Standard Foods and Eternal Materials

Can any of the company-specific risk be diversified away by investing in both Standard Foods and Eternal Materials 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 Standard Foods and Eternal Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Standard Foods Corp and Eternal Materials Co, you can compare the effects of market volatilities on Standard Foods and Eternal Materials 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 Standard Foods with a short position of Eternal Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Foods and Eternal Materials.

Diversification Opportunities for Standard Foods and Eternal Materials

0.64

Correlation Coefficient

Standard Foods  Eternal Materials

Poor diversification

The 3 months correlation between Standard and Eternal is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Standard Foods Corp and Eternal Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Materials and Standard 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 Standard Foods Corp are associated (or correlated) with Eternal Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Materials has no effect on the direction of Standard Foods i.e., Standard Foods and Eternal Materials go up and down completely randomly.

Pair Corralation between Standard Foods and Eternal Materials

Assuming the 90 days trading horizon Standard Foods is expected to generate 164.5 times less return on investment than Eternal Materials. But when comparing it to its historical volatility, Standard Foods Corp is 2.25 times less risky than Eternal Materials. It trades about 0.0 of its potential returns per unit of risk. Eternal Materials Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,935  in Eternal Materials Co on September 4, 2024 and sell it today you would earn a total of  40.00  from holding Eternal Materials Co or generate 1.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Standard Foods Corp  vs.  Eternal Materials Co

Standard Foods Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Foods Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Standard Foods is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Eternal Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eternal Materials Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Eternal Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Standard Foods and Eternal Materials

The main advantage of trading using opposite Standard Foods and Eternal Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Foods position performs unexpectedly, Eternal Materials 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 Eternal Materials will offset losses from the drop in Eternal Materials' long position.

The idea behind Standard Foods Corp and Eternal Materials Co 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.