Correlation Between Coffee Holding and Lifeway Foods

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

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

Diversification Opportunities for Coffee Holding and Lifeway Foods

0.79

Correlation Coefficient

Coffee Holding  Lifeway Foods

Poor diversification

The 3 months correlation between Coffee and Lifeway is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods and Coffee Holding 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 Coffee Holding Co are associated (or correlated) with Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Coffee Holding i.e., Coffee Holding and Lifeway Foods go up and down completely randomly.

Pair Corralation between Coffee Holding and Lifeway Foods

Considering the 90-day investment horizon Coffee Holding Co is expected to generate 2.97 times more return on investment than Lifeway Foods. However, Coffee Holding is 2.97 times more volatile than Lifeway Foods. It trades about 0.05 of its potential returns per unit of risk. Lifeway Foods is currently generating about -0.15 per unit of risk. If you would invest  298.00  in Coffee Holding Co on August 10, 2024 and sell it today you would earn a total of  9.00  from holding Coffee Holding Co or generate 3.02% return on investment over 90 days.

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

Coffee Holding Co  vs.  Lifeway Foods

Coffee Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coffee Holding sustained solid returns over the last few months and may actually be approaching a breakup point.

Lifeway Foods

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lifeway Foods showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coffee Holding and Lifeway Foods

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

The idea behind Coffee Holding Co and Lifeway 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.