Correlation Between Freshpet and Davidstea

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

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

Diversification Opportunities for Freshpet and Davidstea

-0.57

Correlation Coefficient

Freshpet  Davidstea

Excellent diversification

The 3 months correlation between Freshpet and Davidstea is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Freshpet and Davidstea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davidstea and Freshpet 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 Freshpet are associated (or correlated) with Davidstea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davidstea has no effect on the direction of Freshpet i.e., Freshpet and Davidstea go up and down completely randomly.

Pair Corralation between Freshpet and Davidstea

If you would invest  6,489  in Freshpet on January 30, 2024 and sell it today you would earn a total of  4,152  from holding Freshpet or generate 63.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	0.68%
Values	Daily Returns

Freshpet  vs.  Davidstea

Freshpet

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Davidstea

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davidstea has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Davidstea is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Freshpet and Davidstea

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

The idea behind Freshpet and Davidstea 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.