Correlation Between Tyson Foods and BBB Foods

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

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

Diversification Opportunities for Tyson Foods and BBB Foods

0.26

Correlation Coefficient

Tyson Foods  BBB Foods

Modest diversification

The 3 months correlation between Tyson and BBB is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods and Tyson 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 Tyson Foods are associated (or correlated) with BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Tyson Foods i.e., Tyson Foods and BBB Foods go up and down completely randomly.

Pair Corralation between Tyson Foods and BBB Foods

Considering the 90-day investment horizon Tyson Foods is expected to under-perform the BBB Foods. But the stock apears to be less risky and, when comparing its historical volatility, Tyson Foods is 1.9 times less risky than BBB Foods. The stock trades about -0.06 of its potential returns per unit of risk. The BBB Foods is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,299  in BBB Foods on February 7, 2024 and sell it today you would earn a total of  239.00  from holding BBB Foods or generate 10.4% return on investment over 90 days.

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

Tyson Foods  vs.  BBB Foods

Tyson Foods

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tyson Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Tyson Foods may actually be approaching a critical reversion point that can send shares even higher in June 2024.

BBB Foods

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BBB Foods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental drivers, BBB Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tyson Foods and BBB Foods

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

The idea behind Tyson Foods and BBB 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.