Correlation Between Natural Grocers and Sprouts Farmers

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

By analyzing existing cross correlation between Natural Grocers by and Sprouts Farmers Market, you can compare the effects of market volatilities on Natural Grocers and Sprouts Farmers 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 Grocers with a short position of Sprouts Farmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Grocers and Sprouts Farmers.

Diversification Opportunities for Natural Grocers and Sprouts Farmers

0.87

Correlation Coefficient

Natural Grocers  Sprouts Farmers

Very poor diversification

The 3 months correlation between Natural and Sprouts is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Natural Grocers by and Sprouts Farmers Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprouts Farmers Market and Natural Grocers 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 Grocers by are associated (or correlated) with Sprouts Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprouts Farmers Market has no effect on the direction of Natural Grocers i.e., Natural Grocers and Sprouts Farmers go up and down completely randomly.

Pair Corralation between Natural Grocers and Sprouts Farmers

Given the investment horizon of 90 days Natural Grocers by is expected to under-perform the Sprouts Farmers. In addition to that, Natural Grocers is 1.05 times more volatile than Sprouts Farmers Market. It trades about 0.0 of its total potential returns per unit of risk. Sprouts Farmers Market is currently generating about 0.1 per unit of volatility. If you would invest  12,730  in Sprouts Farmers Market on December 29, 2024 and sell it today you would earn a total of  2,046  from holding Sprouts Farmers Market or generate 16.07% return on investment over 90 days.

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

Natural Grocers by  vs.  Sprouts Farmers Market

Natural Grocers by

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natural Grocers by has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Natural Grocers is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sprouts Farmers Market

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sprouts Farmers Market are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Sprouts Farmers displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natural Grocers and Sprouts Farmers

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

The idea behind Natural Grocers by and Sprouts Farmers Market 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.