Correlation Between Premier Foods and Central Garden

Can any of the company-specific risk be diversified away by investing in both Premier Foods 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 Premier Foods and Central Garden 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 Central Garden Pet, you can compare the effects of market volatilities on Premier Foods 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 Premier Foods with a short position of Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premier Foods and Central Garden.

Diversification Opportunities for Premier Foods and Central Garden

0.61

Correlation Coefficient

Premier Foods  Central Garden

Poor diversification

The 3 months correlation between Premier and Central is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods Plc 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 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 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 Premier Foods i.e., Premier Foods and Central Garden go up and down completely randomly.

Pair Corralation between Premier Foods and Central Garden

If you would invest  3,747  in Central Garden Pet on September 12, 2024 and sell it today you would earn a total of  312.00  from holding Central Garden Pet or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.56%
Values	Daily Returns

Premier Foods Plc  vs.  Central Garden Pet

Premier Foods Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Foods Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Premier Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Central Garden Pet

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Premier Foods and Central Garden

The main advantage of trading using opposite Premier Foods and Central Garden positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premier Foods 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 Premier Foods Plc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.