Correlation Between Central Garden and Westrock Coffee

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

Diversification Opportunities for Central Garden and Westrock Coffee

0.61

Correlation Coefficient

Central Garden  Westrock Coffee

Poor diversification

The 3 months correlation between Central and Westrock is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Westrock Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westrock Coffee 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 Westrock Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westrock Coffee has no effect on the direction of Central Garden i.e., Central Garden and Westrock Coffee go up and down completely randomly.

Pair Corralation between Central Garden and Westrock Coffee

Assuming the 90 days horizon Central Garden Pet is expected to generate 0.69 times more return on investment than Westrock Coffee. However, Central Garden Pet is 1.44 times less risky than Westrock Coffee. It trades about 0.0 of its potential returns per unit of risk. Westrock Coffee is currently generating about -0.06 per unit of risk. If you would invest  3,523  in Central Garden Pet on September 24, 2024 and sell it today you would lose (196.00) from holding Central Garden Pet or give up 5.56% of portfolio value over 90 days.

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

Central Garden Pet  vs.  Westrock Coffee

Central Garden Pet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Westrock Coffee

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westrock Coffee has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Westrock Coffee 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 Westrock Coffee

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

The idea behind Central Garden Pet and Westrock Coffee 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.