Correlation Between Central Garden and National HealthCare

Can any of the company-specific risk be diversified away by investing in both Central Garden and National HealthCare 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 National HealthCare 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 National HealthCare, you can compare the effects of market volatilities on Central Garden and National HealthCare 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 National HealthCare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and National HealthCare.

Diversification Opportunities for Central Garden and National HealthCare

0.3

Correlation Coefficient

Central Garden  National HealthCare

Weak diversification

The 3 months correlation between Central and National is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and National HealthCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National HealthCare 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 National HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National HealthCare has no effect on the direction of Central Garden i.e., Central Garden and National HealthCare go up and down completely randomly.

Pair Corralation between Central Garden and National HealthCare

Assuming the 90 days horizon Central Garden Pet is expected to generate 0.96 times more return on investment than National HealthCare. However, Central Garden Pet is 1.04 times less risky than National HealthCare. It trades about 0.04 of its potential returns per unit of risk. National HealthCare is currently generating about -0.09 per unit of risk. If you would invest  3,268  in Central Garden Pet on September 21, 2024 and sell it today you would earn a total of  114.00  from holding Central Garden Pet or generate 3.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Central Garden Pet  vs.  National HealthCare

Central Garden Pet

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Garden Pet are ranked lower than 2 (%) 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.

National HealthCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National HealthCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Central Garden and National HealthCare

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

The idea behind Central Garden Pet and National HealthCare 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.