Correlation Between National Beverage and Boston Beer

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

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

Diversification Opportunities for National Beverage and Boston Beer

0.78

Correlation Coefficient

National Beverage  Boston Beer

Poor diversification

The 3 months correlation between National and Boston is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer and National Beverage 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 Beverage Corp are associated (or correlated) with Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of National Beverage i.e., National Beverage and Boston Beer go up and down completely randomly.

Pair Corralation between National Beverage and Boston Beer

Given the investment horizon of 90 days National Beverage is expected to generate 2.69 times less return on investment than Boston Beer. In addition to that, National Beverage is 1.05 times more volatile than Boston Beer. It trades about 0.06 of its total potential returns per unit of risk. Boston Beer is currently generating about 0.17 per unit of volatility. If you would invest  27,187  in Boston Beer on September 14, 2024 and sell it today you would earn a total of  4,723  from holding Boston Beer or generate 17.37% return on investment over 90 days.

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

National Beverage Corp  vs.  Boston Beer

National Beverage Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 4 (%) 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.

Boston Beer

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Boston Beer displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and Boston Beer

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

The idea behind National Beverage Corp and Boston Beer 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.