Correlation Between Lifeway Foods and Natural Alternatives

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

By analyzing existing cross correlation between Lifeway Foods and Natural Alternatives International, you can compare the effects of market volatilities on Lifeway Foods and Natural Alternatives 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 Lifeway Foods with a short position of Natural Alternatives. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifeway Foods and Natural Alternatives.

Diversification Opportunities for Lifeway Foods and Natural Alternatives

0.25

Correlation Coefficient

Lifeway Foods  Natural Alternatives

Modest diversification

The 3 months correlation between Lifeway and Natural is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods and Natural Alternatives Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Alternatives and Lifeway Foods 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 Lifeway Foods are associated (or correlated) with Natural Alternatives. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Alternatives has no effect on the direction of Lifeway Foods i.e., Lifeway Foods and Natural Alternatives go up and down completely randomly.

Pair Corralation between Lifeway Foods and Natural Alternatives

Given the investment horizon of 90 days Lifeway Foods is expected to generate 0.9 times more return on investment than Natural Alternatives. However, Lifeway Foods is 1.11 times less risky than Natural Alternatives. It trades about 0.04 of its potential returns per unit of risk. Natural Alternatives International is currently generating about -0.11 per unit of risk. If you would invest  2,330  in Lifeway Foods on December 29, 2024 and sell it today you would earn a total of  127.00  from holding Lifeway Foods or generate 5.45% return on investment over 90 days.

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

Lifeway Foods  vs.  Natural Alternatives Internati

Lifeway Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Lifeway Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Natural Alternatives

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natural Alternatives International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Lifeway Foods and Natural Alternatives

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

The idea behind Lifeway Foods and Natural Alternatives International 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.