Correlation Between Kroger and Sprouts Farmers

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

By analyzing existing cross correlation between Kroger Company and Sprouts Farmers Market, you can compare the effects of market volatilities on Kroger and Sprouts Farmers 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 Kroger with a short position of Sprouts Farmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kroger and Sprouts Farmers.

Diversification Opportunities for Kroger and Sprouts Farmers

0.54

Correlation Coefficient

Kroger  Sprouts Farmers

Very weak diversification

The 3 months correlation between Kroger and Sprouts is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Kroger Company and Sprouts Farmers Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprouts Farmers Market and Kroger 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 Kroger Company are associated (or correlated) with Sprouts Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprouts Farmers Market has no effect on the direction of Kroger i.e., Kroger and Sprouts Farmers go up and down completely randomly.

Pair Corralation between Kroger and Sprouts Farmers

Allowing for the 90-day total investment horizon Kroger Company is expected to generate 0.49 times more return on investment than Sprouts Farmers. However, Kroger Company is 2.03 times less risky than Sprouts Farmers. It trades about 0.08 of its potential returns per unit of risk. Sprouts Farmers Market is currently generating about -0.02 per unit of risk. If you would invest  6,078  in Kroger Company on November 28, 2024 and sell it today you would earn a total of  410.00  from holding Kroger Company or generate 6.75% return on investment over 90 days.

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

Kroger Company  vs.  Sprouts Farmers Market

Kroger Company

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Kroger may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Sprouts Farmers Market

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprouts Farmers Market has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Sprouts Farmers is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Kroger and Sprouts Farmers

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

The idea behind Kroger Company and Sprouts Farmers Market 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.