Correlation Between Coffee Holding and Central Garden

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

By analyzing existing cross correlation between Coffee Holding Co and Central Garden Pet, you can compare the effects of market volatilities on Coffee Holding and Central Garden 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 Coffee Holding with a short position of Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee Holding and Central Garden.

Diversification Opportunities for Coffee Holding and Central Garden

-0.19

Correlation Coefficient

Coffee Holding  Central Garden

Good diversification

The 3 months correlation between Coffee and Central is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet and Coffee Holding 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 Coffee Holding Co are associated (or correlated) with Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of Coffee Holding i.e., Coffee Holding and Central Garden go up and down completely randomly.

Pair Corralation between Coffee Holding and Central Garden

Considering the 90-day investment horizon Coffee Holding Co is expected to generate 4.1 times more return on investment than Central Garden. However, Coffee Holding is 4.1 times more volatile than Central Garden Pet. It trades about 0.19 of its potential returns per unit of risk. Central Garden Pet is currently generating about 0.02 per unit of risk. If you would invest  209.00  in Coffee Holding Co on September 3, 2024 and sell it today you would earn a total of  198.00  from holding Coffee Holding Co or generate 94.74% return on investment over 90 days.

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

Coffee Holding Co  vs.  Central Garden Pet

Coffee Holding

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coffee Holding sustained solid returns over the last few months and may actually be approaching a breakup point.

Central Garden Pet

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 1 (%) 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.

Pair Trading with Coffee Holding and Central Garden

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

The idea behind Coffee Holding Co and Central Garden Pet 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.