Correlation Between Limoneira and Freshpet

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

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

Diversification Opportunities for Limoneira and Freshpet

0.58

Correlation Coefficient

Limoneira  Freshpet

Very weak diversification

The 3 months correlation between Limoneira and Freshpet is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Limoneira Co and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet and Limoneira 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 Limoneira Co are associated (or correlated) with Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Limoneira i.e., Limoneira and Freshpet go up and down completely randomly.

Pair Corralation between Limoneira and Freshpet

Given the investment horizon of 90 days Limoneira Co is expected to generate 0.81 times more return on investment than Freshpet. However, Limoneira Co is 1.23 times less risky than Freshpet. It trades about 0.07 of its potential returns per unit of risk. Freshpet is currently generating about 0.05 per unit of risk. If you would invest  1,051  in Limoneira Co on February 3, 2024 and sell it today you would earn a total of  1,094  from holding Limoneira Co or generate 104.09% return on investment over 90 days.

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

Limoneira Co  vs.  Freshpet

Limoneira

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Limoneira Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Limoneira reported solid returns over the last few months and may actually be approaching a breakup point.

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 weak basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Limoneira and Freshpet

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

The idea behind Limoneira Co and Freshpet 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.