Correlation Between National Retail and TRACTOR SUPPLY

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

By analyzing existing cross correlation between National Retail Properties and TRACTOR SUPPLY, you can compare the effects of market volatilities on National Retail and TRACTOR SUPPLY 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 National Retail with a short position of TRACTOR SUPPLY. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and TRACTOR SUPPLY.

Diversification Opportunities for National Retail and TRACTOR SUPPLY

0.25

Correlation Coefficient

National Retail  TRACTOR SUPPLY

Modest diversification

The 3 months correlation between National and TRACTOR is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and TRACTOR SUPPLY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRACTOR SUPPLY and National Retail 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 National Retail Properties are associated (or correlated) with TRACTOR SUPPLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRACTOR SUPPLY has no effect on the direction of National Retail i.e., National Retail and TRACTOR SUPPLY go up and down completely randomly.

Pair Corralation between National Retail and TRACTOR SUPPLY

Assuming the 90 days trading horizon National Retail Properties is expected to under-perform the TRACTOR SUPPLY. But the stock apears to be less risky and, when comparing its historical volatility, National Retail Properties is 2.77 times less risky than TRACTOR SUPPLY. The stock trades about -0.44 of its potential returns per unit of risk. The TRACTOR SUPPLY is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  25,641  in TRACTOR SUPPLY on September 21, 2024 and sell it today you would lose (226.00) from holding TRACTOR SUPPLY or give up 0.88% of portfolio value over 90 days.

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

National Retail Properties  vs.  TRACTOR SUPPLY

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

TRACTOR SUPPLY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TRACTOR SUPPLY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, TRACTOR SUPPLY is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with National Retail and TRACTOR SUPPLY

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

The idea behind National Retail Properties and TRACTOR SUPPLY 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.