Correlation Between Nu Skin and Central Garden

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

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

Diversification Opportunities for Nu Skin and Central Garden

-0.07

Correlation Coefficient

Nu Skin  Central Garden

Good diversification

The 3 months correlation between NUS and Central is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Nu Skin Enterprises 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 Nu Skin 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 Nu Skin Enterprises 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 Nu Skin i.e., Nu Skin and Central Garden go up and down completely randomly.

Pair Corralation between Nu Skin and Central Garden

Considering the 90-day investment horizon Nu Skin Enterprises is expected to generate 2.15 times more return on investment than Central Garden. However, Nu Skin is 2.15 times more volatile than Central Garden Pet. It trades about 0.07 of its potential returns per unit of risk. Central Garden Pet is currently generating about -0.01 per unit of risk. If you would invest  663.00  in Nu Skin Enterprises on December 28, 2024 and sell it today you would earn a total of  88.00  from holding Nu Skin Enterprises or generate 13.27% return on investment over 90 days.

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

Nu Skin Enterprises  vs.  Central Garden Pet

Nu Skin Enterprises

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nu Skin Enterprises are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nu Skin unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nu Skin and Central Garden

The main advantage of trading using opposite Nu Skin and Central Garden positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nu Skin 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 Nu Skin Enterprises 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.