Correlation Between Natural Health and Australian Agricultural

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

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

Diversification Opportunities for Natural Health and Australian Agricultural

0.42

Correlation Coefficient

Natural Health  Australian Agricultural

Very weak diversification

The 3 months correlation between Natural and Australian is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Natural Health Trends and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural and Natural Health 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 Natural Health Trends are associated (or correlated) with Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of Natural Health i.e., Natural Health and Australian Agricultural go up and down completely randomly.

Pair Corralation between Natural Health and Australian Agricultural

Assuming the 90 days trading horizon Natural Health Trends is expected to generate 2.07 times more return on investment than Australian Agricultural. However, Natural Health is 2.07 times more volatile than Australian Agricultural. It trades about 0.13 of its potential returns per unit of risk. Australian Agricultural is currently generating about 0.03 per unit of risk. If you would invest  390.00  in Natural Health Trends on December 26, 2024 and sell it today you would earn a total of  90.00  from holding Natural Health Trends or generate 23.08% return on investment over 90 days.

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

Natural Health Trends  vs.  Australian Agricultural

Natural Health Trends

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Health Trends are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Natural Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Australian Agricultural

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Australian Agricultural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Natural Health and Australian Agricultural

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

The idea behind Natural Health Trends and Australian Agricultural 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.