Correlation Between United Natural and PennantPark Investment

Can any of the company-specific risk be diversified away by investing in both United Natural and PennantPark Investment 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 PennantPark Investment 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 PennantPark Investment, you can compare the effects of market volatilities on United Natural and PennantPark Investment 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 PennantPark Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Natural and PennantPark Investment.

Diversification Opportunities for United Natural and PennantPark Investment

0.73

Correlation Coefficient

United Natural  PennantPark Investment

Poor diversification

The 3 months correlation between United and PennantPark is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding United Natural Foods and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment 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 PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of United Natural i.e., United Natural and PennantPark Investment go up and down completely randomly.

Pair Corralation between United Natural and PennantPark Investment

Assuming the 90 days horizon United Natural Foods is expected to generate 2.29 times more return on investment than PennantPark Investment. However, United Natural is 2.29 times more volatile than PennantPark Investment. It trades about 0.07 of its potential returns per unit of risk. PennantPark Investment is currently generating about 0.06 per unit of risk. If you would invest  1,378  in United Natural Foods on October 5, 2024 and sell it today you would earn a total of  1,206  from holding United Natural Foods or generate 87.52% return on investment over 90 days.

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

United Natural Foods  vs.  PennantPark Investment

United Natural Foods

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days United Natural Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, United Natural reported solid returns over the last few months and may actually be approaching a breakup point.

PennantPark Investment

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days PennantPark Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United Natural and PennantPark Investment

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

The idea behind United Natural Foods and PennantPark Investment 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.