Correlation Between Central Garden and DDC Enterprise

Can any of the company-specific risk be diversified away by investing in both Central Garden and DDC Enterprise 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 DDC Enterprise 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 DDC Enterprise Limited, you can compare the effects of market volatilities on Central Garden and DDC Enterprise 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 DDC Enterprise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and DDC Enterprise.

Diversification Opportunities for Central Garden and DDC Enterprise

-0.46

Correlation Coefficient

Central Garden  DDC Enterprise

Very good diversification

The 3 months correlation between Central and DDC is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and DDC Enterprise Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DDC Enterprise 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 DDC Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DDC Enterprise has no effect on the direction of Central Garden i.e., Central Garden and DDC Enterprise go up and down completely randomly.

Pair Corralation between Central Garden and DDC Enterprise

Given the investment horizon of 90 days Central Garden Pet is expected to under-perform the DDC Enterprise. But the stock apears to be less risky and, when comparing its historical volatility, Central Garden Pet is 3.57 times less risky than DDC Enterprise. The stock trades about -0.04 of its potential returns per unit of risk. The DDC Enterprise Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  17.00  in DDC Enterprise Limited on December 28, 2024 and sell it today you would lose (3.00) from holding DDC Enterprise Limited or give up 17.65% of portfolio value over 90 days.

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

Central Garden Pet  vs.  DDC Enterprise Limited

Central Garden Pet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Central Garden is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

DDC Enterprise

Risk-Adjusted Performance

Weak

Over the last 90 days DDC Enterprise Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, DDC Enterprise is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Central Garden and DDC Enterprise

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

The idea behind Central Garden Pet and DDC Enterprise 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.