Correlation Between National Health and Cal-Maine Foods

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

By analyzing existing cross correlation between National Health Investors and Cal Maine Foods, you can compare the effects of market volatilities on National Health and Cal-Maine Foods 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 National Health with a short position of Cal-Maine Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Health and Cal-Maine Foods.

Diversification Opportunities for National Health and Cal-Maine Foods

-0.32

Correlation Coefficient

National Health  Cal-Maine Foods

Very good diversification

The 3 months correlation between National and Cal-Maine is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Cal Maine Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cal Maine Foods and National Health 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 National Health Investors are associated (or correlated) with Cal-Maine Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cal Maine Foods has no effect on the direction of National Health i.e., National Health and Cal-Maine Foods go up and down completely randomly.

Pair Corralation between National Health and Cal-Maine Foods

Assuming the 90 days trading horizon National Health is expected to generate 20.74 times less return on investment than Cal-Maine Foods. But when comparing it to its historical volatility, National Health Investors is 1.02 times less risky than Cal-Maine Foods. It trades about 0.01 of its potential returns per unit of risk. Cal Maine Foods is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  6,372  in Cal Maine Foods on August 31, 2024 and sell it today you would earn a total of  2,788  from holding Cal Maine Foods or generate 43.75% return on investment over 90 days.

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

National Health Investors  vs.  Cal Maine Foods

National Health Investors

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Health Investors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, National Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cal Maine Foods

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cal Maine Foods are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cal-Maine Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Health and Cal-Maine Foods

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

The idea behind National Health Investors and Cal Maine Foods 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.