Correlation Between Natural Health and Oriental Culture

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

By analyzing existing cross correlation between Natural Health Trend and Oriental Culture Holding, you can compare the effects of market volatilities on Natural Health and Oriental Culture 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 Oriental Culture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natural Health and Oriental Culture.

Diversification Opportunities for Natural Health and Oriental Culture

-0.14

Correlation Coefficient

Natural Health  Oriental Culture

Good diversification

The 3 months correlation between Natural and Oriental is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Natural Health Trend and Oriental Culture Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Culture Holding 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 Trend are associated (or correlated) with Oriental Culture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Culture Holding has no effect on the direction of Natural Health i.e., Natural Health and Oriental Culture go up and down completely randomly.

Pair Corralation between Natural Health and Oriental Culture

Given the investment horizon of 90 days Natural Health Trend is expected to under-perform the Oriental Culture. But the stock apears to be less risky and, when comparing its historical volatility, Natural Health Trend is 1.65 times less risky than Oriental Culture. The stock trades about -0.02 of its potential returns per unit of risk. The Oriental Culture Holding is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  138.00  in Oriental Culture Holding on December 1, 2024 and sell it today you would lose (8.00) from holding Oriental Culture Holding or give up 5.8% of portfolio value over 90 days.

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

Natural Health Trend  vs.  Oriental Culture Holding

Natural Health Trend

Risk-Adjusted Performance

Very Weak

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

Oriental Culture Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oriental Culture Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Oriental Culture 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 Oriental Culture

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

The idea behind Natural Health Trend and Oriental Culture Holding 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.