Correlation Between Foodlink and Prodea Real

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

By analyzing existing cross correlation between Foodlink AE and Prodea Real Estate, you can compare the effects of market volatilities on Foodlink and Prodea Real 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 Foodlink with a short position of Prodea Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foodlink and Prodea Real.

Diversification Opportunities for Foodlink and Prodea Real

-0.08

Correlation Coefficient

Foodlink  Prodea Real

Good diversification

The 3 months correlation between Foodlink and Prodea is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Foodlink AE and Prodea Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prodea Real Estate and Foodlink 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 Foodlink AE are associated (or correlated) with Prodea Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prodea Real Estate has no effect on the direction of Foodlink i.e., Foodlink and Prodea Real go up and down completely randomly.

Pair Corralation between Foodlink and Prodea Real

Assuming the 90 days trading horizon Foodlink AE is expected to generate 0.72 times more return on investment than Prodea Real. However, Foodlink AE is 1.4 times less risky than Prodea Real. It trades about 0.11 of its potential returns per unit of risk. Prodea Real Estate is currently generating about 0.03 per unit of risk. If you would invest  35.00  in Foodlink AE on September 13, 2024 and sell it today you would earn a total of  7.00  from holding Foodlink AE or generate 20.0% return on investment over 90 days.

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

Foodlink AE  vs.  Prodea Real Estate

Foodlink AE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foodlink AE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Foodlink sustained solid returns over the last few months and may actually be approaching a breakup point.

Prodea Real Estate

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prodea Real Estate are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Prodea Real may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Foodlink and Prodea Real

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

The idea behind Foodlink AE and Prodea Real Estate 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.