Correlation Between BLACK and Natural Alternatives

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

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

Diversification Opportunities for BLACK and Natural Alternatives

0.13

Correlation Coefficient

BLACK  Natural Alternatives

Average diversification

The 3 months correlation between BLACK and Natural is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding BLACK HILLS P and Natural Alternatives Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Alternatives and BLACK 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 BLACK HILLS P are associated (or correlated) with Natural Alternatives. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Alternatives has no effect on the direction of BLACK i.e., BLACK and Natural Alternatives go up and down completely randomly.

Pair Corralation between BLACK and Natural Alternatives

Assuming the 90 days trading horizon BLACK HILLS P is expected to generate 0.14 times more return on investment than Natural Alternatives. However, BLACK HILLS P is 6.9 times less risky than Natural Alternatives. It trades about -0.12 of its potential returns per unit of risk. Natural Alternatives International is currently generating about -0.04 per unit of risk. If you would invest  9,892  in BLACK HILLS P on December 24, 2024 and sell it today you would lose (246.00) from holding BLACK HILLS P or give up 2.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	81.97%
Values	Daily Returns

BLACK HILLS P  vs.  Natural Alternatives Internati

BLACK HILLS P

Risk-Adjusted Performance

Very Weak

Over the last 90 days BLACK HILLS P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BLACK is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Natural Alternatives

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natural Alternatives International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with BLACK and Natural Alternatives

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

The idea behind BLACK HILLS P and Natural Alternatives International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.