Correlation Between Premium Brands and Empire Company

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

By analyzing existing cross correlation between Premium Brands Holdings and Empire Company Limited, you can compare the effects of market volatilities on Premium Brands and Empire Company 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 Premium Brands with a short position of Empire Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premium Brands and Empire Company.

Diversification Opportunities for Premium Brands and Empire Company

-0.3

Correlation Coefficient

Premium Brands  Empire Company

Very good diversification

The 3 months correlation between Premium and Empire is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Premium Brands Holdings and Empire Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Limited and Premium Brands 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 Premium Brands Holdings are associated (or correlated) with Empire Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Limited has no effect on the direction of Premium Brands i.e., Premium Brands and Empire Company go up and down completely randomly.

Pair Corralation between Premium Brands and Empire Company

Assuming the 90 days trading horizon Premium Brands Holdings is expected to under-perform the Empire Company. But the stock apears to be less risky and, when comparing its historical volatility, Premium Brands Holdings is 1.05 times less risky than Empire Company. The stock trades about -0.03 of its potential returns per unit of risk. The Empire Company Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,722  in Empire Company Limited on September 4, 2024 and sell it today you would earn a total of  544.00  from holding Empire Company Limited or generate 14.62% return on investment over 90 days.

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

Premium Brands Holdings  vs.  Empire Company Limited

Premium Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Empire Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Company Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Empire Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Premium Brands and Empire Company

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

The idea behind Premium Brands Holdings and Empire Company Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.