Correlation Between RETAIL FOOD and Vulcan Materials

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

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

Diversification Opportunities for RETAIL FOOD and Vulcan Materials

0.69

Correlation Coefficient

RETAIL FOOD  Vulcan Materials

Poor diversification

The 3 months correlation between RETAIL and Vulcan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding RETAIL FOOD GROUP and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and RETAIL FOOD 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 RETAIL FOOD GROUP are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of RETAIL FOOD i.e., RETAIL FOOD and Vulcan Materials go up and down completely randomly.

Pair Corralation between RETAIL FOOD and Vulcan Materials

Assuming the 90 days trading horizon RETAIL FOOD is expected to generate 5.87 times less return on investment than Vulcan Materials. But when comparing it to its historical volatility, RETAIL FOOD GROUP is 1.04 times less risky than Vulcan Materials. It trades about 0.03 of its potential returns per unit of risk. Vulcan Materials is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  21,560  in Vulcan Materials on September 15, 2024 and sell it today you would earn a total of  4,840  from holding Vulcan Materials or generate 22.45% return on investment over 90 days.

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

RETAIL FOOD GROUP  vs.  Vulcan Materials

RETAIL FOOD GROUP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RETAIL FOOD GROUP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, RETAIL FOOD is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vulcan Materials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RETAIL FOOD and Vulcan Materials

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

The idea behind RETAIL FOOD GROUP and Vulcan Materials 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.