Correlation Between US Foods and Sprouts Farmers

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

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

Diversification Opportunities for US Foods and Sprouts Farmers

0.43

Correlation Coefficient

US Foods  Sprouts Farmers

Very weak diversification

The 3 months correlation between USFD and Sprouts is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding US Foods Holding and Sprouts Farmers Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprouts Farmers Market and US 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 US Foods Holding are associated (or correlated) with Sprouts Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprouts Farmers Market has no effect on the direction of US Foods i.e., US Foods and Sprouts Farmers go up and down completely randomly.

Pair Corralation between US Foods and Sprouts Farmers

Given the investment horizon of 90 days US Foods Holding is expected to under-perform the Sprouts Farmers. But the stock apears to be less risky and, when comparing its historical volatility, US Foods Holding is 1.61 times less risky than Sprouts Farmers. The stock trades about -0.07 of its potential returns per unit of risk. The Sprouts Farmers Market is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  14,625  in Sprouts Farmers Market on January 22, 2025 and sell it today you would earn a total of  1,705  from holding Sprouts Farmers Market or generate 11.66% return on investment over 90 days.

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

US Foods Holding  vs.  Sprouts Farmers Market

US Foods Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Foods Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Sprouts Farmers Market

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprouts Farmers Market are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Sprouts Farmers displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Foods and Sprouts Farmers

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

The idea behind US Foods Holding and Sprouts Farmers Market 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.

Check out your portfolio center.

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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.