Correlation Between SENECA FOODS and Rolls Royce

Can any of the company-specific risk be diversified away by investing in both SENECA FOODS and Rolls Royce 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 SENECA FOODS and Rolls Royce into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SENECA FOODS A and Rolls Royce Holdings plc, you can compare the effects of market volatilities on SENECA FOODS and Rolls Royce 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 SENECA FOODS with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of SENECA FOODS and Rolls Royce.

Diversification Opportunities for SENECA FOODS and Rolls Royce

0.62

Correlation Coefficient

SENECA FOODS  Rolls Royce

Poor diversification

The 3 months correlation between SENECA and Rolls is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SENECA FOODS A and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and SENECA 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 SENECA FOODS A are associated (or correlated) with Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of SENECA FOODS i.e., SENECA FOODS and Rolls Royce go up and down completely randomly.

Pair Corralation between SENECA FOODS and Rolls Royce

Assuming the 90 days trading horizon SENECA FOODS A is expected to generate 1.28 times more return on investment than Rolls Royce. However, SENECA FOODS is 1.28 times more volatile than Rolls Royce Holdings plc. It trades about 0.21 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.08 per unit of risk. If you would invest  5,250  in SENECA FOODS A on September 22, 2024 and sell it today you would earn a total of  2,000  from holding SENECA FOODS A or generate 38.1% return on investment over 90 days.

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

SENECA FOODS A  vs.  Rolls Royce Holdings plc

SENECA FOODS A

Risk-Adjusted Performance

16 of 100

Solid

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

Rolls Royce Holdings

Risk-Adjusted Performance

5 of 100

OK

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

Pair Trading with SENECA FOODS and Rolls Royce

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

The idea behind SENECA FOODS A and Rolls Royce Holdings plc 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.