Correlation Between Premier Foods and Roebuck Food

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

By analyzing existing cross correlation between Premier Foods PLC and Roebuck Food Group, you can compare the effects of market volatilities on Premier Foods and Roebuck Food 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 Premier Foods with a short position of Roebuck Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premier Foods and Roebuck Food.

Diversification Opportunities for Premier Foods and Roebuck Food

0.65

Correlation Coefficient

Premier Foods  Roebuck Food

Poor diversification

The 3 months correlation between Premier and Roebuck is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods PLC and Roebuck Food Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roebuck Food Group and Premier Foods 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 Premier Foods PLC are associated (or correlated) with Roebuck Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roebuck Food Group has no effect on the direction of Premier Foods i.e., Premier Foods and Roebuck Food go up and down completely randomly.

Pair Corralation between Premier Foods and Roebuck Food

Assuming the 90 days trading horizon Premier Foods PLC is expected to generate 1.7 times more return on investment than Roebuck Food. However, Premier Foods is 1.7 times more volatile than Roebuck Food Group. It trades about 0.12 of its potential returns per unit of risk. Roebuck Food Group is currently generating about 0.14 per unit of risk. If you would invest  17,900  in Premier Foods PLC on September 2, 2024 and sell it today you would earn a total of  1,660  from holding Premier Foods PLC or generate 9.27% return on investment over 90 days.

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

Premier Foods PLC  vs.  Roebuck Food Group

Premier Foods PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Premier Foods may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Roebuck Food Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Roebuck Food Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Roebuck Food is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Premier Foods and Roebuck Food

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

The idea behind Premier Foods PLC and Roebuck Food Group 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.