Correlation Between United Natural and Target

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

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

Diversification Opportunities for United Natural and Target

-0.48

Correlation Coefficient

United Natural  Target

Very good diversification

The 3 months correlation between United and Target is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding United Natural Foods, and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and United Natural 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 United Natural Foods, are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of United Natural i.e., United Natural and Target go up and down completely randomly.

Pair Corralation between United Natural and Target

Assuming the 90 days trading horizon United Natural Foods, is expected to generate 3.22 times more return on investment than Target. However, United Natural is 3.22 times more volatile than Target. It trades about 0.15 of its potential returns per unit of risk. Target is currently generating about 0.1 per unit of risk. If you would invest  3,660  in United Natural Foods, on October 9, 2024 and sell it today you would earn a total of  540.00  from holding United Natural Foods, or generate 14.75% return on investment over 90 days.

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

United Natural Foods,  vs.  Target

United Natural Foods,

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Natural Foods, are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Natural sustained solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Target may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United Natural and Target

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

The idea behind United Natural Foods, and Target 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.