Correlation Between Central Garden and Top Wealth

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

Diversification Opportunities for Central Garden and Top Wealth

-0.51

Correlation Coefficient

Central Garden  Top Wealth

Excellent diversification

The 3 months correlation between Central and Top is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Top Wealth Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Top Wealth Group 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 Top Wealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Top Wealth Group has no effect on the direction of Central Garden i.e., Central Garden and Top Wealth go up and down completely randomly.

Pair Corralation between Central Garden and Top Wealth

Assuming the 90 days horizon Central Garden Pet is expected to generate 0.46 times more return on investment than Top Wealth. However, Central Garden Pet is 2.16 times less risky than Top Wealth. It trades about 0.03 of its potential returns per unit of risk. Top Wealth Group is currently generating about -0.32 per unit of risk. If you would invest  3,322  in Central Garden Pet on September 25, 2024 and sell it today you would earn a total of  32.00  from holding Central Garden Pet or generate 0.96% return on investment over 90 days.

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

Central Garden Pet  vs.  Top Wealth Group

Central Garden Pet

Risk-Adjusted Performance

4 of 100

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. Despite somewhat weak basic indicators, Central Garden may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Top Wealth Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Top Wealth Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Top Wealth reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and Top Wealth

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

The idea behind Central Garden Pet and Top Wealth Group 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.