Correlation Between River and National Beverage

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

By analyzing existing cross correlation between River and Mercantile and National Beverage Corp, you can compare the effects of market volatilities on River and National Beverage 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 River with a short position of National Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of River and National Beverage.

Diversification Opportunities for River and National Beverage

0.47

Correlation Coefficient

River  National Beverage

Very weak diversification

The 3 months correlation between River and National is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp and River 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 River and Mercantile are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of River i.e., River and National Beverage go up and down completely randomly.

Pair Corralation between River and National Beverage

Assuming the 90 days trading horizon River and Mercantile is expected to generate 0.07 times more return on investment than National Beverage. However, River and Mercantile is 14.58 times less risky than National Beverage. It trades about -0.23 of its potential returns per unit of risk. National Beverage Corp is currently generating about -0.39 per unit of risk. If you would invest  17,850  in River and Mercantile on October 6, 2024 and sell it today you would lose (100.00) from holding River and Mercantile or give up 0.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

River and Mercantile  vs.  National Beverage Corp

River and Mercantile

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, National Beverage is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with River and National Beverage

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

The idea behind River and Mercantile and National Beverage Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.