Correlation Between Central Garden and Natural Alternatives

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

Diversification Opportunities for Central Garden and Natural Alternatives

0.31

Correlation Coefficient

Central Garden  Natural Alternatives

Weak diversification

The 3 months correlation between Central and Natural is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Natural Alternatives Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Alternatives 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 Natural Alternatives. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Alternatives has no effect on the direction of Central Garden i.e., Central Garden and Natural Alternatives go up and down completely randomly.

Pair Corralation between Central Garden and Natural Alternatives

Assuming the 90 days horizon Central Garden Pet is expected to generate 1.38 times more return on investment than Natural Alternatives. However, Central Garden is 1.38 times more volatile than Natural Alternatives International. It trades about -0.05 of its potential returns per unit of risk. Natural Alternatives International is currently generating about -0.12 per unit of risk. If you would invest  3,379  in Central Garden Pet on November 28, 2024 and sell it today you would lose (247.00) from holding Central Garden Pet or give up 7.31% of portfolio value over 90 days.

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

Central Garden Pet  vs.  Natural Alternatives Internati

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. Despite latest weak 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.

Natural Alternatives

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natural Alternatives International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Central Garden and Natural Alternatives

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

The idea behind Central Garden Pet and Natural Alternatives International 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.