Correlation Between Treehouse Foods and A2 Milk

Can any of the company-specific risk be diversified away by investing in both Treehouse Foods and A2 Milk 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 Treehouse Foods and A2 Milk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Treehouse Foods and The A2 Milk, you can compare the effects of market volatilities on Treehouse Foods and A2 Milk 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 Treehouse Foods with a short position of A2 Milk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Treehouse Foods and A2 Milk.

Diversification Opportunities for Treehouse Foods and A2 Milk

0.44

Correlation Coefficient

Treehouse Foods  A2 Milk

Very weak diversification

The 3 months correlation between Treehouse and ACOPY is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Treehouse Foods and The A2 Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A2 Milk and Treehouse 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 Treehouse Foods are associated (or correlated) with A2 Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A2 Milk has no effect on the direction of Treehouse Foods i.e., Treehouse Foods and A2 Milk go up and down completely randomly.

Pair Corralation between Treehouse Foods and A2 Milk

Considering the 90-day investment horizon Treehouse Foods is expected to under-perform the A2 Milk. But the stock apears to be less risky and, when comparing its historical volatility, Treehouse Foods is 1.68 times less risky than A2 Milk. The stock trades about -0.11 of its potential returns per unit of risk. The The A2 Milk is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  378.00  in The A2 Milk on September 2, 2024 and sell it today you would lose (3.00) from holding The A2 Milk or give up 0.79% of portfolio value over 90 days.

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

Treehouse Foods  vs.  The A2 Milk

Treehouse Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Treehouse Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

A2 Milk

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The A2 Milk are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, A2 Milk is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Treehouse Foods and A2 Milk

The main advantage of trading using opposite Treehouse Foods and A2 Milk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treehouse Foods position performs unexpectedly, A2 Milk 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 A2 Milk will offset losses from the drop in A2 Milk's long position.

The idea behind Treehouse Foods and The A2 Milk 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.