Correlation Between Central Garden and Local Bounti

Can any of the company-specific risk be diversified away by investing in both Central Garden and Local Bounti 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 Central Garden and Local Bounti into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Garden Pet and Local Bounti Corp, you can compare the effects of market volatilities on Central Garden and Local Bounti 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 Central Garden with a short position of Local Bounti. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Local Bounti.

Diversification Opportunities for Central Garden and Local Bounti

-0.82

Correlation Coefficient

Central Garden  Local Bounti

Pay attention - limited upside

The 3 months correlation between Central and Local is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Local Bounti Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Local Bounti Corp and Central Garden 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 Central Garden Pet are associated (or correlated) with Local Bounti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Local Bounti Corp has no effect on the direction of Central Garden i.e., Central Garden and Local Bounti go up and down completely randomly.

Pair Corralation between Central Garden and Local Bounti

Assuming the 90 days horizon Central Garden Pet is expected to generate 0.16 times more return on investment than Local Bounti. However, Central Garden Pet is 6.44 times less risky than Local Bounti. It trades about 0.17 of its potential returns per unit of risk. Local Bounti Corp is currently generating about 0.01 per unit of risk. If you would invest  2,951  in Central Garden Pet on September 26, 2024 and sell it today you would earn a total of  403.00  from holding Central Garden Pet or generate 13.66% return on investment over 90 days.

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

Central Garden Pet  vs.  Local Bounti Corp

Central Garden Pet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Local Bounti Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Local Bounti Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental indicators, Local Bounti disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and Local Bounti

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

The idea behind Central Garden Pet and Local Bounti 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.