Correlation Between Sprouts Farmers and Dingdong ADR

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

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

Diversification Opportunities for Sprouts Farmers and Dingdong ADR

-0.17

Correlation Coefficient

Sprouts Farmers  Dingdong ADR

Good diversification

The 3 months correlation between Sprouts and Dingdong is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Sprouts Farmers Market and Dingdong ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dingdong ADR and Sprouts Farmers 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 Sprouts Farmers Market are associated (or correlated) with Dingdong ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dingdong ADR has no effect on the direction of Sprouts Farmers i.e., Sprouts Farmers and Dingdong ADR go up and down completely randomly.

Pair Corralation between Sprouts Farmers and Dingdong ADR

Considering the 90-day investment horizon Sprouts Farmers Market is expected to generate 1.02 times more return on investment than Dingdong ADR. However, Sprouts Farmers is 1.02 times more volatile than Dingdong ADR. It trades about 0.13 of its potential returns per unit of risk. Dingdong ADR is currently generating about 0.0 per unit of risk. If you would invest  12,730  in Sprouts Farmers Market on November 30, 2024 and sell it today you would earn a total of  2,110  from holding Sprouts Farmers Market or generate 16.58% return on investment over 90 days.

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

Sprouts Farmers Market  vs.  Dingdong ADR

Sprouts Farmers Market

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprouts Farmers Market has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Sprouts Farmers is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Dingdong ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dingdong ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Sprouts Farmers and Dingdong ADR

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

The idea behind Sprouts Farmers Market and Dingdong ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.