Correlation Between Associated British and Pilgrims Pride

Can any of the company-specific risk be diversified away by investing in both Associated British and Pilgrims Pride 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 Associated British and Pilgrims Pride into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Associated British and Pilgrims Pride

-0.66

Correlation Coefficient

Associated British  Pilgrims Pride

Excellent diversification

The 3 months correlation between Associated and Pilgrims is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Pilgrims Pride Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilgrims Pride Corp and Associated British 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 Associated British Foods are associated (or correlated) with Pilgrims Pride. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilgrims Pride Corp has no effect on the direction of Associated British i.e., Associated British and Pilgrims Pride go up and down completely randomly.

Pair Corralation between Associated British and Pilgrims Pride

Assuming the 90 days horizon Associated British Foods is expected to under-perform the Pilgrims Pride. But the pink sheet apears to be less risky and, when comparing its historical volatility, Associated British Foods is 2.48 times less risky than Pilgrims Pride. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Pilgrims Pride Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,581  in Pilgrims Pride Corp on September 2, 2024 and sell it today you would earn a total of  580.00  from holding Pilgrims Pride Corp or generate 12.66% return on investment over 90 days.

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

Associated British Foods  vs.  Pilgrims Pride Corp

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pilgrims Pride Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pilgrims Pride Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Pilgrims Pride exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Associated British and Pilgrims Pride

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

The idea behind Associated British Foods and Pilgrims Pride Corp 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.