Correlation Between Central Garden and BG Foods

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

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

Diversification Opportunities for Central Garden and BG Foods

0.23

Correlation Coefficient

Central Garden  BG Foods

Modest diversification

The 3 months correlation between Central and BGS is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and Central Garden 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 Central Garden Pet are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Central Garden i.e., Central Garden and BG Foods go up and down completely randomly.

Pair Corralation between Central Garden and BG Foods

Given the investment horizon of 90 days Central Garden Pet is expected to generate 0.59 times more return on investment than BG Foods. However, Central Garden Pet is 1.69 times less risky than BG Foods. It trades about 0.06 of its potential returns per unit of risk. BG Foods is currently generating about 0.01 per unit of risk. If you would invest  2,940  in Central Garden Pet on January 31, 2024 and sell it today you would earn a total of  1,184  from holding Central Garden Pet or generate 40.27% return on investment over 90 days.

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

Central Garden Pet  vs.  BG Foods

Central Garden Pet

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Central Garden unveiled solid returns over the last few months and may actually be approaching a breakup point.

BG Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BG Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, BG Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and BG Foods

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

The idea behind Central Garden Pet and BG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.