Correlation Between Agritech and National Foods

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

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

Diversification Opportunities for Agritech and National Foods

-0.08

Correlation Coefficient

Agritech  National Foods

Good diversification

The 3 months correlation between Agritech and National is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Agritech and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods and Agritech 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 Agritech are associated (or correlated) with National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Agritech i.e., Agritech and National Foods go up and down completely randomly.

Pair Corralation between Agritech and National Foods

Assuming the 90 days trading horizon Agritech is expected to generate 1.24 times more return on investment than National Foods. However, Agritech is 1.24 times more volatile than National Foods. It trades about 0.1 of its potential returns per unit of risk. National Foods is currently generating about 0.12 per unit of risk. If you would invest  3,836  in Agritech on October 23, 2024 and sell it today you would earn a total of  480.00  from holding Agritech or generate 12.51% return on investment over 90 days.

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

Agritech  vs.  National Foods

Agritech

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agritech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Agritech reported solid returns over the last few months and may actually be approaching a breakup point.

National Foods

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Agritech and National Foods

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

The idea behind Agritech and National 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.