Correlation Between Natures Sunshine and Treehouse Foods

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

Diversification Opportunities for Natures Sunshine and Treehouse Foods

0.34

Correlation Coefficient

Natures Sunshine  Treehouse Foods

Weak diversification

The 3 months correlation between Natures and Treehouse is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Natures Sunshine Products and Treehouse Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Treehouse Foods 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 Treehouse Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Treehouse Foods has no effect on the direction of Natures Sunshine i.e., Natures Sunshine and Treehouse Foods go up and down completely randomly.

Pair Corralation between Natures Sunshine and Treehouse Foods

Given the investment horizon of 90 days Natures Sunshine Products is expected to under-perform the Treehouse Foods. In addition to that, Natures Sunshine is 1.01 times more volatile than Treehouse Foods. It trades about -0.09 of its total potential returns per unit of risk. Treehouse Foods is currently generating about -0.05 per unit of volatility. If you would invest  3,434  in Treehouse Foods on November 28, 2024 and sell it today you would lose (235.00) from holding Treehouse Foods or give up 6.84% of portfolio value over 90 days.

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

Natures Sunshine Products  vs.  Treehouse Foods

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.

Treehouse Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Treehouse Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Natures Sunshine and Treehouse Foods

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

The idea behind Natures Sunshine Products and Treehouse Foods 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.