Correlation Between New Generation and Active Health

Can any of the company-specific risk be diversified away by investing in both New Generation and Active Health 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 New Generation and Active Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Generation Consumer and Active Health Foods, you can compare the effects of market volatilities on New Generation and Active Health 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 New Generation with a short position of Active Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Generation and Active Health.

Diversification Opportunities for New Generation and Active Health

-0.22

Correlation Coefficient

New Generation  Active Health

Very good diversification

The 3 months correlation between New and Active is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding New Generation Consumer and Active Health Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Active Health Foods and New Generation 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 New Generation Consumer are associated (or correlated) with Active Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Active Health Foods has no effect on the direction of New Generation i.e., New Generation and Active Health go up and down completely randomly.

Pair Corralation between New Generation and Active Health

Given the investment horizon of 90 days New Generation Consumer is expected to generate 1.03 times more return on investment than Active Health. However, New Generation is 1.03 times more volatile than Active Health Foods. It trades about 0.06 of its potential returns per unit of risk. Active Health Foods is currently generating about -0.18 per unit of risk. If you would invest  0.07  in New Generation Consumer on September 18, 2024 and sell it today you would lose (0.01) from holding New Generation Consumer or give up 14.29% of portfolio value over 90 days.

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

New Generation Consumer  vs.  Active Health Foods

New Generation Consumer

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Generation Consumer are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, New Generation reported solid returns over the last few months and may actually be approaching a breakup point.

Active Health Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Active Health Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with New Generation and Active Health

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

The idea behind New Generation Consumer and Active Health Foods 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.