Correlation Between Consolidated Water and Premium Brands

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

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

Diversification Opportunities for Consolidated Water and Premium Brands

-0.46

Correlation Coefficient

Consolidated Water  Premium Brands

Very good diversification

The 3 months correlation between Consolidated and Premium is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Water Co and Premium Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Brands Holdings and Consolidated Water 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 Consolidated Water Co are associated (or correlated) with Premium Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Brands Holdings has no effect on the direction of Consolidated Water i.e., Consolidated Water and Premium Brands go up and down completely randomly.

Pair Corralation between Consolidated Water and Premium Brands

Given the investment horizon of 90 days Consolidated Water Co is expected to under-perform the Premium Brands. In addition to that, Consolidated Water is 1.27 times more volatile than Premium Brands Holdings. It trades about -0.04 of its total potential returns per unit of risk. Premium Brands Holdings is currently generating about -0.03 per unit of volatility. If you would invest  5,600  in Premium Brands Holdings on January 5, 2025 and sell it today you would lose (236.00) from holding Premium Brands Holdings or give up 4.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Consolidated Water Co  vs.  Premium Brands Holdings

Consolidated Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consolidated Water Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Consolidated Water is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Premium Brands Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premium Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Premium Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Consolidated Water and Premium Brands

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

The idea behind Consolidated Water Co and Premium Brands Holdings 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.