Correlation Between Food Life and Lifeway Foods

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

By analyzing existing cross correlation between Food Life Companies and Lifeway Foods, you can compare the effects of market volatilities on Food Life and Lifeway 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 Food Life with a short position of Lifeway Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and Lifeway Foods.

Diversification Opportunities for Food Life and Lifeway Foods

0.12

Correlation Coefficient

Food Life  Lifeway Foods

Average diversification

The 3 months correlation between Food and Lifeway is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods and Food Life 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 Food Life Companies are associated (or correlated) with Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Food Life i.e., Food Life and Lifeway Foods go up and down completely randomly.

Pair Corralation between Food Life and Lifeway Foods

Assuming the 90 days horizon Food Life Companies is expected to generate 0.44 times more return on investment than Lifeway Foods. However, Food Life Companies is 2.27 times less risky than Lifeway Foods. It trades about 0.24 of its potential returns per unit of risk. Lifeway Foods is currently generating about 0.09 per unit of risk. If you would invest  1,650  in Food Life Companies on September 20, 2024 and sell it today you would earn a total of  510.00  from holding Food Life Companies or generate 30.91% return on investment over 90 days.

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

Food Life Companies  vs.  Lifeway Foods

Food Life Companies

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

Lifeway Foods

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lifeway Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Food Life and Lifeway Foods

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

The idea behind Food Life Companies and Lifeway Foods 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.