Correlation Between JM Smucker and Central Garden

Can any of the company-specific risk be diversified away by investing in both JM Smucker and Central Garden 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 JM Smucker and Central Garden into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JM Smucker and Central Garden Pet, you can compare the effects of market volatilities on JM Smucker and Central Garden 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 JM Smucker with a short position of Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of JM Smucker and Central Garden.

Diversification Opportunities for JM Smucker and Central Garden

0.68

Correlation Coefficient

JM Smucker  Central Garden

Poor diversification

The 3 months correlation between SJM and Central is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding JM Smucker and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet and JM Smucker 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 JM Smucker are associated (or correlated) with Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of JM Smucker i.e., JM Smucker and Central Garden go up and down completely randomly.

Pair Corralation between JM Smucker and Central Garden

Considering the 90-day investment horizon JM Smucker is expected to under-perform the Central Garden. But the stock apears to be less risky and, when comparing its historical volatility, JM Smucker is 1.0 times less risky than Central Garden. The stock trades about -0.07 of its potential returns per unit of risk. The Central Garden Pet is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,561  in Central Garden Pet on February 8, 2024 and sell it today you would earn a total of  25.00  from holding Central Garden Pet or generate 0.7% return on investment over 90 days.

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

JM Smucker  vs.  Central Garden Pet

JM Smucker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JM Smucker has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Central Garden Pet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with JM Smucker and Central Garden

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

The idea behind JM Smucker and Central Garden Pet 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.