Correlation Between Lancaster Colony and Nomad Foods

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

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

Diversification Opportunities for Lancaster Colony and Nomad Foods

0.69

Correlation Coefficient

Lancaster Colony  Nomad Foods

Poor diversification

The 3 months correlation between Lancaster and Nomad is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Lancaster Colony and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods 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 Nomad Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomad Foods has no effect on the direction of Lancaster Colony i.e., Lancaster Colony and Nomad Foods go up and down completely randomly.

Pair Corralation between Lancaster Colony and Nomad Foods

Given the investment horizon of 90 days Lancaster Colony is expected to under-perform the Nomad Foods. In addition to that, Lancaster Colony is 1.36 times more volatile than Nomad Foods. It trades about -0.25 of its total potential returns per unit of risk. Nomad Foods is currently generating about -0.26 per unit of volatility. If you would invest  1,898  in Nomad Foods on February 5, 2024 and sell it today you would lose (89.00) from holding Nomad Foods or give up 4.69% of portfolio value over 90 days.

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

Lancaster Colony  vs.  Nomad Foods

Lancaster Colony

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lancaster Colony has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Lancaster Colony is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Nomad Foods

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Nomad Foods is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lancaster Colony and Nomad Foods

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

The idea behind Lancaster Colony and Nomad Foods 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.