Correlation Between Central Garden and A2 Milk

Can any of the company-specific risk be diversified away by investing in both Central Garden and A2 Milk 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 Central Garden and A2 Milk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Garden Pet and The A2 Milk, you can compare the effects of market volatilities on Central Garden and A2 Milk 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 Central Garden with a short position of A2 Milk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and A2 Milk.

Diversification Opportunities for Central Garden and A2 Milk

0.33

Correlation Coefficient

Central Garden  A2 Milk

Weak diversification

The 3 months correlation between Central and ACOPY is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and The A2 Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A2 Milk and Central Garden 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 Central Garden Pet are associated (or correlated) with A2 Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A2 Milk has no effect on the direction of Central Garden i.e., Central Garden and A2 Milk go up and down completely randomly.

Pair Corralation between Central Garden and A2 Milk

Given the investment horizon of 90 days Central Garden is expected to generate 2.45 times less return on investment than A2 Milk. But when comparing it to its historical volatility, Central Garden Pet is 1.8 times less risky than A2 Milk. It trades about 0.05 of its potential returns per unit of risk. The A2 Milk is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  315.00  in The A2 Milk on November 19, 2024 and sell it today you would earn a total of  42.00  from holding The A2 Milk or generate 13.33% return on investment over 90 days.

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

Central Garden Pet  vs.  The A2 Milk

Central Garden Pet

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in March 2025.

A2 Milk

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The A2 Milk are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, A2 Milk showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and A2 Milk

The main advantage of trading using opposite Central Garden and A2 Milk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Garden position performs unexpectedly, A2 Milk 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 A2 Milk will offset losses from the drop in A2 Milk's long position.

The idea behind Central Garden Pet and The A2 Milk 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.