Correlation Between Lancaster Colony and Freshpet

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

Diversification Opportunities for Lancaster Colony and Freshpet

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Lancaster and Freshpet is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lancaster Colony and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet and Lancaster Colony 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 Lancaster Colony are associated (or correlated) with Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Lancaster Colony i.e., Lancaster Colony and Freshpet go up and down completely randomly.

Pair Corralation between Lancaster Colony and Freshpet

Given the investment horizon of 90 days Lancaster Colony is expected to generate 2.02 times less return on investment than Freshpet. But when comparing it to its historical volatility, Lancaster Colony is 1.5 times less risky than Freshpet. It trades about 0.16 of its potential returns per unit of risk. Freshpet is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  10,828  in Freshpet on December 29, 2023 and sell it today you would earn a total of  743.00  from holding Freshpet or generate 6.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

Lancaster Colony  vs.  Freshpet

 Performance 
       Timeline  
Lancaster Colony 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Lancaster Colony are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Lancaster Colony exhibited solid returns over the last few months and may actually be approaching a breakup point.
Freshpet 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lancaster Colony and Freshpet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lancaster Colony and Freshpet

The main advantage of trading using opposite Lancaster Colony and Freshpet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lancaster Colony position performs unexpectedly, Freshpet 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 Freshpet will offset losses from the drop in Freshpet's long position.
The idea behind Lancaster Colony and Freshpet 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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