Correlation Between Natures Sunshine and Central Garden

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

By analyzing existing cross correlation between Natures Sunshine Products and Central Garden Pet, you can compare the effects of market volatilities on Natures Sunshine and Central Garden 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 Natures Sunshine with a short position of Central Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natures Sunshine and Central Garden.

Diversification Opportunities for Natures Sunshine and Central Garden

0.65

Correlation Coefficient

Natures Sunshine  Central Garden

Poor diversification

The 3 months correlation between Natures and Central is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Natures Sunshine Products and Central Garden Pet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Garden Pet and Natures Sunshine 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 Natures Sunshine Products are associated (or correlated) with Central Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Garden Pet has no effect on the direction of Natures Sunshine i.e., Natures Sunshine and Central Garden go up and down completely randomly.

Pair Corralation between Natures Sunshine and Central Garden

Given the investment horizon of 90 days Natures Sunshine Products is expected to under-perform the Central Garden. But the stock apears to be less risky and, when comparing its historical volatility, Natures Sunshine Products is 1.07 times less risky than Central Garden. The stock trades about -0.09 of its potential returns per unit of risk. The Central Garden Pet is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,379  in Central Garden Pet on November 28, 2024 and sell it today you would lose (247.00) from holding Central Garden Pet or give up 7.31% of portfolio value over 90 days.

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

Natures Sunshine Products  vs.  Central Garden Pet

Natures Sunshine Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natures Sunshine Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Central Garden Pet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Natures Sunshine and Central Garden

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

The idea behind Natures Sunshine Products and Central Garden Pet 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.