Correlation Between Central Garden and Coffee Holding

Can any of the company-specific risk be diversified away by investing in both Central Garden and Coffee Holding 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 Central Garden and Coffee Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Garden Pet and Coffee Holding Co, you can compare the effects of market volatilities on Central Garden and Coffee Holding 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 Central Garden with a short position of Coffee Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Coffee Holding.

Diversification Opportunities for Central Garden and Coffee Holding

-0.19

Correlation Coefficient

Central Garden  Coffee Holding

Good diversification

The 3 months correlation between Central and Coffee is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Coffee Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee Holding and Central Garden 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 Central Garden Pet are associated (or correlated) with Coffee Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee Holding has no effect on the direction of Central Garden i.e., Central Garden and Coffee Holding go up and down completely randomly.

Pair Corralation between Central Garden and Coffee Holding

Given the investment horizon of 90 days Central Garden Pet is expected to under-perform the Coffee Holding. But the stock apears to be less risky and, when comparing its historical volatility, Central Garden Pet is 3.1 times less risky than Coffee Holding. The stock trades about -0.01 of its potential returns per unit of risk. The Coffee Holding Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  141.00  in Coffee Holding Co on September 3, 2024 and sell it today you would earn a total of  266.00  from holding Coffee Holding Co or generate 188.65% return on investment over 90 days.

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

Central Garden Pet  vs.  Coffee Holding Co

Central Garden Pet

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Central Garden is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Coffee Holding

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coffee Holding sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and Coffee Holding

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

The idea behind Central Garden Pet and Coffee Holding 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.