Correlation Between US Foods and Performance Food

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

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

Diversification Opportunities for US Foods and Performance Food

0.89

Correlation Coefficient

US Foods  Performance Food

Very poor diversification

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

Pair Corralation between US Foods and Performance Food

Given the investment horizon of 90 days US Foods is expected to generate 1.07 times less return on investment than Performance Food. But when comparing it to its historical volatility, US Foods Holding is 1.09 times less risky than Performance Food. It trades about 0.22 of its potential returns per unit of risk. Performance Food Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  7,349  in Performance Food Group on August 31, 2024 and sell it today you would earn a total of  1,475  from holding Performance Food Group or generate 20.07% return on investment over 90 days.

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

US Foods Holding  vs.  Performance Food Group

US Foods Holding

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in US Foods Holding are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, US Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Performance Food

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Performance Food Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Performance Food exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Foods and Performance Food

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

The idea behind US Foods Holding and Performance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.