Correlation Between Premium Brands and North West

Can any of the company-specific risk be diversified away by investing in both Premium Brands and North West 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 North West 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 North West, you can compare the effects of market volatilities on Premium Brands and North West 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 North West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premium Brands and North West.

Diversification Opportunities for Premium Brands and North West

-0.35

Correlation Coefficient

Premium Brands  North West

Very good diversification

The 3 months correlation between Premium and North is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Premium Brands Holdings and North West in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North West 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 North West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North West has no effect on the direction of Premium Brands i.e., Premium Brands and North West go up and down completely randomly.

Pair Corralation between Premium Brands and North West

Assuming the 90 days trading horizon Premium Brands Holdings is expected to under-perform the North West. In addition to that, Premium Brands is 1.29 times more volatile than North West. It trades about -0.05 of its total potential returns per unit of risk. North West is currently generating about 0.11 per unit of volatility. If you would invest  4,854  in North West on September 5, 2024 and sell it today you would earn a total of  426.00  from holding North West or generate 8.78% 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.  North West

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 very healthy technical indicators, Premium Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

North West

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North West are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, North West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Premium Brands and North West

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

The idea behind Premium Brands Holdings and North West 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.