Correlation Between Central Garden and DaVita HealthCare

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

Diversification Opportunities for Central Garden and DaVita HealthCare

0.05

Correlation Coefficient

Central Garden  DaVita HealthCare

Significant diversification

The 3 months correlation between Central and DaVita is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and DaVita HealthCare Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DaVita HealthCare 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 DaVita HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DaVita HealthCare has no effect on the direction of Central Garden i.e., Central Garden and DaVita HealthCare go up and down completely randomly.

Pair Corralation between Central Garden and DaVita HealthCare

Assuming the 90 days horizon Central Garden is expected to generate 2.98 times less return on investment than DaVita HealthCare. But when comparing it to its historical volatility, Central Garden Pet is 1.1 times less risky than DaVita HealthCare. It trades about 0.03 of its potential returns per unit of risk. DaVita HealthCare Partners is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,467  in DaVita HealthCare Partners on September 20, 2024 and sell it today you would earn a total of  7,287  from holding DaVita HealthCare Partners or generate 97.59% return on investment over 90 days.

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

Central Garden Pet  vs.  DaVita HealthCare Partners

Central Garden Pet

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

DaVita HealthCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DaVita HealthCare Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Central Garden and DaVita HealthCare

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

The idea behind Central Garden Pet and DaVita HealthCare Partners 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.