Correlation Between National Beverage and Fevertree Drinks

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

By analyzing existing cross correlation between National Beverage Corp and Fevertree Drinks Plc, you can compare the effects of market volatilities on National Beverage and Fevertree Drinks 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 Beverage with a short position of Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Fevertree Drinks.

Diversification Opportunities for National Beverage and Fevertree Drinks

-0.55

Correlation Coefficient

National Beverage  Fevertree Drinks

Excellent diversification

The 3 months correlation between National and Fevertree is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc and National Beverage 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 Beverage Corp are associated (or correlated) with Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of National Beverage i.e., National Beverage and Fevertree Drinks go up and down completely randomly.

Pair Corralation between National Beverage and Fevertree Drinks

Given the investment horizon of 90 days National Beverage Corp is expected to under-perform the Fevertree Drinks. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 2.53 times less risky than Fevertree Drinks. The stock trades about -0.01 of its potential returns per unit of risk. The Fevertree Drinks Plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  830.00  in Fevertree Drinks Plc on December 30, 2024 and sell it today you would earn a total of  250.00  from holding Fevertree Drinks Plc or generate 30.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

National Beverage Corp  vs.  Fevertree Drinks Plc

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Fevertree Drinks Plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fevertree Drinks Plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fevertree Drinks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and Fevertree Drinks

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

The idea behind National Beverage Corp and Fevertree Drinks Plc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.