Correlation Between Sprouts Farmers and Dingdong ADR

Can any of the company-specific risk be diversified away by investing in both Sprouts Farmers and Dingdong ADR 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 Sprouts Farmers and Dingdong ADR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sprouts Farmers Market and Dingdong ADR, you can compare the effects of market volatilities on Sprouts Farmers and Dingdong ADR 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 Sprouts Farmers with a short position of Dingdong ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprouts Farmers and Dingdong ADR.

Diversification Opportunities for Sprouts Farmers and Dingdong ADR

0.85

Correlation Coefficient

Sprouts Farmers  Dingdong ADR

Very poor diversification

The 3 months correlation between Sprouts and Dingdong is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sprouts Farmers Market and Dingdong ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dingdong ADR and Sprouts Farmers 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 Sprouts Farmers Market are associated (or correlated) with Dingdong ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dingdong ADR has no effect on the direction of Sprouts Farmers i.e., Sprouts Farmers and Dingdong ADR go up and down completely randomly.

Pair Corralation between Sprouts Farmers and Dingdong ADR

Considering the 90-day investment horizon Sprouts Farmers is expected to generate 1.75 times less return on investment than Dingdong ADR. But when comparing it to its historical volatility, Sprouts Farmers Market is 3.05 times less risky than Dingdong ADR. It trades about 0.32 of its potential returns per unit of risk. Dingdong ADR is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Dingdong ADR on September 11, 2024 and sell it today you would earn a total of  198.00  from holding Dingdong ADR or generate 73.33% return on investment over 90 days.

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

Sprouts Farmers Market  vs.  Dingdong ADR

Sprouts Farmers Market

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sprouts Farmers Market are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Sprouts Farmers displayed solid returns over the last few months and may actually be approaching a breakup point.

Dingdong ADR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dingdong ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Dingdong ADR disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sprouts Farmers and Dingdong ADR

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

The idea behind Sprouts Farmers Market and Dingdong ADR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.