Correlation Between Vital Farms and Treehouse Foods

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

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

Diversification Opportunities for Vital Farms and Treehouse Foods

-0.04

Correlation Coefficient

Vital Farms  Treehouse Foods

Good diversification

The 3 months correlation between Vital and Treehouse is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Vital Farms and Treehouse Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Treehouse Foods and Vital Farms 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 Vital Farms are associated (or correlated) with Treehouse Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Treehouse Foods has no effect on the direction of Vital Farms i.e., Vital Farms and Treehouse Foods go up and down completely randomly.

Pair Corralation between Vital Farms and Treehouse Foods

Given the investment horizon of 90 days Vital Farms is expected to under-perform the Treehouse Foods. In addition to that, Vital Farms is 1.66 times more volatile than Treehouse Foods. It trades about -0.02 of its total potential returns per unit of risk. Treehouse Foods is currently generating about 0.12 per unit of volatility. If you would invest  3,777  in Treehouse Foods on March 18, 2024 and sell it today you would earn a total of  1,420  from holding Treehouse Foods or generate 37.6% return on investment over 90 days.

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

Vital Farms  vs.  Treehouse Foods

Vital Farms

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vital Farms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in July 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Treehouse Foods

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Treehouse Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical indicators, Treehouse Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vital Farms and Treehouse Foods

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

The idea behind Vital Farms and Treehouse 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.