Correlation Between Estee Lauder and National Beverage

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

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

Diversification Opportunities for Estee Lauder and National Beverage

-0.68

Correlation Coefficient

Estee Lauder  National Beverage

Excellent diversification

The 3 months correlation between Estee and National is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies 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 Estee Lauder 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 Estee Lauder Companies 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 Estee Lauder i.e., Estee Lauder and National Beverage go up and down completely randomly.

Pair Corralation between Estee Lauder and National Beverage

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the National Beverage. In addition to that, Estee Lauder is 2.32 times more volatile than National Beverage Corp. It trades about -0.02 of its total potential returns per unit of risk. National Beverage Corp is currently generating about 0.03 per unit of volatility. If you would invest  4,565  in National Beverage Corp on September 17, 2024 and sell it today you would earn a total of  104.00  from holding National Beverage Corp or generate 2.28% return on investment over 90 days.

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

Estee Lauder Companies  vs.  National Beverage Corp

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Estee Lauder is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

National Beverage Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Estee Lauder and National Beverage

The main advantage of trading using opposite Estee Lauder and National Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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 Estee Lauder Companies 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.