Correlation Between ScanSource and US FOODS

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Can any of the company-specific risk be diversified away by investing in both ScanSource and US FOODS 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 ScanSource and US FOODS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ScanSource and US FOODS HOLDING, you can compare the effects of market volatilities on ScanSource and US FOODS 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 ScanSource with a short position of US FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of ScanSource and US FOODS.

Diversification Opportunities for ScanSource and US FOODS

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between ScanSource and UFH is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and US FOODS HOLDING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US FOODS HOLDING and ScanSource 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 ScanSource are associated (or correlated) with US FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US FOODS HOLDING has no effect on the direction of ScanSource i.e., ScanSource and US FOODS go up and down completely randomly.

Pair Corralation between ScanSource and US FOODS

Assuming the 90 days horizon ScanSource is expected to generate 1.3 times less return on investment than US FOODS. In addition to that, ScanSource is 1.36 times more volatile than US FOODS HOLDING. It trades about 0.06 of its total potential returns per unit of risk. US FOODS HOLDING is currently generating about 0.11 per unit of volatility. If you would invest  2,940  in US FOODS HOLDING on September 23, 2024 and sell it today you would earn a total of  3,560  from holding US FOODS HOLDING or generate 121.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

ScanSource  vs.  US FOODS HOLDING

 Performance 
       Timeline  
ScanSource 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.
US FOODS HOLDING 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in US FOODS HOLDING are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, US FOODS exhibited solid returns over the last few months and may actually be approaching a breakup point.

ScanSource and US FOODS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ScanSource and US FOODS

The main advantage of trading using opposite ScanSource and US FOODS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ScanSource position performs unexpectedly, US FOODS 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 US FOODS will offset losses from the drop in US FOODS's long position.
The idea behind ScanSource and US FOODS HOLDING 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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