Correlation Between Freshpet and Darling Ingredients

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

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

Diversification Opportunities for Freshpet and Darling Ingredients

0.58

Correlation Coefficient

Freshpet  Darling Ingredients

Very weak diversification

The 3 months correlation between Freshpet and Darling is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Freshpet and Darling Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darling Ingredients and Freshpet 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 Freshpet are associated (or correlated) with Darling Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darling Ingredients has no effect on the direction of Freshpet i.e., Freshpet and Darling Ingredients go up and down completely randomly.

Pair Corralation between Freshpet and Darling Ingredients

Given the investment horizon of 90 days Freshpet is expected to generate 0.99 times more return on investment than Darling Ingredients. However, Freshpet is 1.01 times less risky than Darling Ingredients. It trades about 0.09 of its potential returns per unit of risk. Darling Ingredients is currently generating about 0.02 per unit of risk. If you would invest  13,889  in Freshpet on September 4, 2024 and sell it today you would earn a total of  1,536  from holding Freshpet or generate 11.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Freshpet  vs.  Darling Ingredients

Freshpet

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Freshpet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Darling Ingredients

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Darling Ingredients are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Darling Ingredients is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Freshpet and Darling Ingredients

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

The idea behind Freshpet and Darling Ingredients 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.