Correlation Between National Retail and Cal Maine

Can any of the company-specific risk be diversified away by investing in both National Retail and Cal Maine 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 National Retail and Cal Maine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Retail Properties and Cal Maine Foods, you can compare the effects of market volatilities on National Retail and Cal Maine 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 National Retail with a short position of Cal Maine. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Cal Maine.

Diversification Opportunities for National Retail and Cal Maine

-0.51

Correlation Coefficient

National Retail  Cal Maine

Excellent diversification

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

Pair Corralation between National Retail and Cal Maine

Assuming the 90 days trading horizon National Retail is expected to generate 24.33 times less return on investment than Cal Maine. But when comparing it to its historical volatility, National Retail Properties is 1.61 times less risky than Cal Maine. It trades about 0.01 of its potential returns per unit of risk. Cal Maine Foods is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,623  in Cal Maine Foods on September 27, 2024 and sell it today you would earn a total of  5,201  from holding Cal Maine Foods or generate 112.5% return on investment over 90 days.

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

National Retail Properties  vs.  Cal Maine Foods

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Cal Maine Foods

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cal Maine Foods are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Cal Maine unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Retail and Cal Maine

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

The idea behind National Retail Properties and Cal Maine Foods 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.