Correlation Between Natural Health and Brown Forman

Can any of the company-specific risk be diversified away by investing in both Natural Health and Brown Forman 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 Brown Forman 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 Brown Forman, you can compare the effects of market volatilities on Natural Health and Brown Forman 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 Brown Forman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Health and Brown Forman.

Diversification Opportunities for Natural Health and Brown Forman

-0.24

Correlation Coefficient

Natural Health  Brown Forman

Very good diversification

The 3 months correlation between Natural and Brown is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Natural Health Trends and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman 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 Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Natural Health i.e., Natural Health and Brown Forman go up and down completely randomly.

Pair Corralation between Natural Health and Brown Forman

Assuming the 90 days trading horizon Natural Health Trends is expected to generate 1.69 times more return on investment than Brown Forman. However, Natural Health is 1.69 times more volatile than Brown Forman. It trades about 0.05 of its potential returns per unit of risk. Brown Forman is currently generating about -0.04 per unit of risk. If you would invest  270.00  in Natural Health Trends on September 28, 2024 and sell it today you would earn a total of  150.00  from holding Natural Health Trends or generate 55.56% return on investment over 90 days.

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

Natural Health Trends  vs.  Brown Forman

Natural Health Trends

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Natural Health Trends has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Natural Health and Brown Forman

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

The idea behind Natural Health Trends and Brown Forman 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.