Correlation Between BOSTON BEER and National Health

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

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

Diversification Opportunities for BOSTON BEER and National Health

-0.21

Correlation Coefficient

BOSTON BEER  National Health

Very good diversification

The 3 months correlation between BOSTON and National is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding BOSTON BEER A and National Health Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Health Investors and BOSTON BEER 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 BOSTON BEER A are associated (or correlated) with National Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Health Investors has no effect on the direction of BOSTON BEER i.e., BOSTON BEER and National Health go up and down completely randomly.

Pair Corralation between BOSTON BEER and National Health

Assuming the 90 days trading horizon BOSTON BEER A is expected to generate 0.83 times more return on investment than National Health. However, BOSTON BEER A is 1.2 times less risky than National Health. It trades about 0.2 of its potential returns per unit of risk. National Health Investors is currently generating about -0.04 per unit of risk. If you would invest  24,260  in BOSTON BEER A on September 13, 2024 and sell it today you would earn a total of  5,440  from holding BOSTON BEER A or generate 22.42% return on investment over 90 days.

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

BOSTON BEER A   vs.  National Health Investors

BOSTON BEER A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, BOSTON BEER exhibited solid returns over the last few months and may actually be approaching a breakup point.

National Health Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Health Investors has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with BOSTON BEER and National Health

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

The idea behind BOSTON BEER A and National Health Investors 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.