Correlation Between Auto Trader and National Beverage

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

By analyzing existing cross correlation between Auto Trader Group and National Beverage Corp, you can compare the effects of market volatilities on Auto Trader and National Beverage 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 Auto Trader with a short position of National Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and National Beverage.

Diversification Opportunities for Auto Trader and National Beverage

-0.54

Correlation Coefficient

Auto Trader  National Beverage

Excellent diversification

The 3 months correlation between Auto and National is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp and Auto Trader 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 Auto Trader Group are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of Auto Trader i.e., Auto Trader and National Beverage go up and down completely randomly.

Pair Corralation between Auto Trader and National Beverage

Assuming the 90 days trading horizon Auto Trader is expected to generate 1.04 times less return on investment than National Beverage. But when comparing it to its historical volatility, Auto Trader Group is 2.77 times less risky than National Beverage. It trades about 0.07 of its potential returns per unit of risk. National Beverage Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,093  in National Beverage Corp on September 22, 2024 and sell it today you would earn a total of  471.00  from holding National Beverage Corp or generate 11.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

Auto Trader Group  vs.  National Beverage Corp

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, National Beverage is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Auto Trader and National Beverage

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

The idea behind Auto Trader Group and National Beverage Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.