Correlation Between BJs Restaurants and Natural Health

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

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

Diversification Opportunities for BJs Restaurants and Natural Health

-0.16

Correlation Coefficient

BJs Restaurants  Natural Health

Good diversification

The 3 months correlation between BJs and Natural is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and Natural Health Trends in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Health Trends and BJs Restaurants 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 BJs Restaurants are associated (or correlated) with Natural Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Health Trends has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and Natural Health go up and down completely randomly.

Pair Corralation between BJs Restaurants and Natural Health

Assuming the 90 days trading horizon BJs Restaurants is expected to under-perform the Natural Health. But the stock apears to be less risky and, when comparing its historical volatility, BJs Restaurants is 1.46 times less risky than Natural Health. The stock trades about -0.08 of its potential returns per unit of risk. The Natural Health Trends is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  404.00  in Natural Health Trends on December 21, 2024 and sell it today you would earn a total of  76.00  from holding Natural Health Trends or generate 18.81% return on investment over 90 days.

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

BJs Restaurants  vs.  Natural Health Trends

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Natural Health Trends

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Health Trends are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Natural Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Restaurants and Natural Health

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

The idea behind BJs Restaurants and Natural Health Trends 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.