Correlation Between Big Tree and Natures Sunshine

Can any of the company-specific risk be diversified away by investing in both Big Tree and Natures Sunshine 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 Big Tree and Natures Sunshine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big Tree Cloud and Natures Sunshine Products, you can compare the effects of market volatilities on Big Tree and Natures Sunshine 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 Big Tree with a short position of Natures Sunshine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Tree and Natures Sunshine.

Diversification Opportunities for Big Tree and Natures Sunshine

0.49

Correlation Coefficient

Big Tree  Natures Sunshine

Very weak diversification

The 3 months correlation between Big and Natures is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Big Tree Cloud and Natures Sunshine Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natures Sunshine Products and Big Tree 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 Big Tree Cloud are associated (or correlated) with Natures Sunshine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natures Sunshine Products has no effect on the direction of Big Tree i.e., Big Tree and Natures Sunshine go up and down completely randomly.

Pair Corralation between Big Tree and Natures Sunshine

Assuming the 90 days horizon Big Tree Cloud is expected to generate 5.57 times more return on investment than Natures Sunshine. However, Big Tree is 5.57 times more volatile than Natures Sunshine Products. It trades about 0.01 of its potential returns per unit of risk. Natures Sunshine Products is currently generating about -0.11 per unit of risk. If you would invest  3.27  in Big Tree Cloud on December 28, 2024 and sell it today you would lose (1.03) from holding Big Tree Cloud or give up 31.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

Big Tree Cloud  vs.  Natures Sunshine Products

Big Tree Cloud

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big Tree Cloud has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Big Tree is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Natures Sunshine Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natures Sunshine Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Big Tree and Natures Sunshine

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

The idea behind Big Tree Cloud and Natures Sunshine Products 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.