Correlation Between Lifeway Foods and Coffee Holding

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

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

Diversification Opportunities for Lifeway Foods and Coffee Holding

0.63

Correlation Coefficient

Lifeway Foods  Coffee Holding

Poor diversification

The 3 months correlation between Lifeway and Coffee is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and Coffee Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee Holding and Lifeway 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 Lifeway Foods are associated (or correlated) with Coffee Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee Holding has no effect on the direction of Lifeway Foods i.e., Lifeway Foods and Coffee Holding go up and down completely randomly.

Pair Corralation between Lifeway Foods and Coffee Holding

Given the investment horizon of 90 days Lifeway Foods is expected to generate 1.38 times more return on investment than Coffee Holding. However, Lifeway Foods is 1.38 times more volatile than Coffee Holding Co. It trades about 0.07 of its potential returns per unit of risk. Coffee Holding Co is currently generating about -0.02 per unit of risk. If you would invest  612.00  in Lifeway Foods on February 26, 2024 and sell it today you would earn a total of  936.00  from holding Lifeway Foods or generate 152.94% return on investment over 90 days.

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

Lifeway Foods  vs.  Coffee Holding Co

Lifeway Foods

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lifeway Foods showed solid returns over the last few months and may actually be approaching a breakup point.

Coffee Holding

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Coffee Holding may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Lifeway Foods and Coffee Holding

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

The idea behind Lifeway Foods and Coffee Holding Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.