Correlation Between Central Garden and Post Holdings

Can any of the company-specific risk be diversified away by investing in both Central Garden and Post Holdings 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 Post Holdings 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 Post Holdings, you can compare the effects of market volatilities on Central Garden and Post Holdings 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 Post Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Post Holdings.

Diversification Opportunities for Central Garden and Post Holdings

0.45

Correlation Coefficient

Central Garden  Post Holdings

Very weak diversification

The 3 months correlation between Central and Post is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Post Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Post Holdings 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 Post Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Post Holdings has no effect on the direction of Central Garden i.e., Central Garden and Post Holdings go up and down completely randomly.

Pair Corralation between Central Garden and Post Holdings

Given the investment horizon of 90 days Central Garden Pet is expected to generate 1.19 times more return on investment than Post Holdings. However, Central Garden is 1.19 times more volatile than Post Holdings. It trades about 0.46 of its potential returns per unit of risk. Post Holdings is currently generating about 0.37 per unit of risk. If you would invest  3,517  in Central Garden Pet on September 4, 2024 and sell it today you would earn a total of  563.00  from holding Central Garden Pet or generate 16.01% return on investment over 90 days.

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

Central Garden Pet  vs.  Post Holdings

Central Garden Pet

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 4 (%) 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.

Post Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Post Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Post Holdings is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Central Garden and Post Holdings

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

The idea behind Central Garden Pet and Post Holdings 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.