Correlation Between Boston Beer and Freshpet

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

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

Diversification Opportunities for Boston Beer and Freshpet

-0.53

Correlation Coefficient

Boston Beer  Freshpet

Excellent diversification

The 3 months correlation between Boston and Freshpet is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet and Boston Beer 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 Boston Beer 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 Boston Beer i.e., Boston Beer and Freshpet go up and down completely randomly.

Pair Corralation between Boston Beer and Freshpet

Considering the 90-day investment horizon Boston Beer is expected to generate 3.13 times more return on investment than Freshpet. However, Boston Beer is 3.13 times more volatile than Freshpet. It trades about 0.09 of its potential returns per unit of risk. Freshpet is currently generating about 0.14 per unit of risk. If you would invest  27,159  in Boston Beer on March 20, 2024 and sell it today you would earn a total of  1,933  from holding Boston Beer or generate 7.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Boston Beer  vs.  Freshpet

Boston Beer

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Boston Beer is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Freshpet

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Beer and Freshpet

The main advantage of trading using opposite Boston Beer and Freshpet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Beer 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 Boston Beer 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.