Correlation Between National Beverage and Wesfarmers

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

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

Diversification Opportunities for National Beverage and Wesfarmers

0.47

Correlation Coefficient

National Beverage  Wesfarmers

Very weak diversification

The 3 months correlation between National and Wesfarmers is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Wesfarmers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers Limited and National Beverage 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 National Beverage Corp are associated (or correlated) with Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers Limited has no effect on the direction of National Beverage i.e., National Beverage and Wesfarmers go up and down completely randomly.

Pair Corralation between National Beverage and Wesfarmers

Assuming the 90 days horizon National Beverage is expected to generate 2.66 times less return on investment than Wesfarmers. In addition to that, National Beverage is 1.47 times more volatile than Wesfarmers Limited. It trades about 0.02 of its total potential returns per unit of risk. Wesfarmers Limited is currently generating about 0.07 per unit of volatility. If you would invest  2,775  in Wesfarmers Limited on October 4, 2024 and sell it today you would earn a total of  1,547  from holding Wesfarmers Limited or generate 55.75% return on investment over 90 days.

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

National Beverage Corp  vs.  Wesfarmers Limited

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Wesfarmers Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Wesfarmers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with National Beverage and Wesfarmers

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

The idea behind National Beverage Corp and Wesfarmers Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.