Correlation Between Big 5 and Natural Health
Can any of the company-specific risk be diversified away by investing in both Big 5 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 Big 5 and Natural Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Natural Health Trends, you can compare the effects of market volatilities on Big 5 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 Big 5 with a short position of Natural Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Natural Health.
Diversification Opportunities for Big 5 and Natural Health
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Big and Natural is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting 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 Big 5 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 Big 5 Sporting 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 Big 5 i.e., Big 5 and Natural Health go up and down completely randomly.
Pair Corralation between Big 5 and Natural Health
Assuming the 90 days horizon Big 5 Sporting is expected to generate 1.16 times more return on investment than Natural Health. However, Big 5 is 1.16 times more volatile than Natural Health Trends. It trades about 0.07 of its potential returns per unit of risk. Natural Health Trends is currently generating about -0.01 per unit of risk. If you would invest 152.00 in Big 5 Sporting on September 5, 2024 and sell it today you would earn a total of 7.00 from holding Big 5 Sporting or generate 4.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Big 5 Sporting vs. Natural Health Trends
Performance |
| Timeline |
| Big 5 Sporting |
| Natural Health Trends |
Big 5 and Natural Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and Natural Health
The main advantage of trading using opposite Big 5 and Natural Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 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 Big 5 Sporting 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.| Natural Health vs. ANGLER GAMING PLC | Natural Health vs. Hochschild Mining plc | Natural Health vs. HOCHSCHILD MINING | Natural Health vs. OURGAME INTHOLDL 00005 |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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