Correlation Between Central Garden and Natures Sunshine

Can any of the company-specific risk be diversified away by investing in both Central Garden and Natures Sunshine 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 Central Garden and Natures Sunshine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Garden Pet and Natures Sunshine Products, you can compare the effects of market volatilities on Central Garden and Natures Sunshine 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 Central Garden with a short position of Natures Sunshine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Natures Sunshine.

Diversification Opportunities for Central Garden and Natures Sunshine

0.21

Correlation Coefficient

Central Garden  Natures Sunshine

Modest diversification

The 3 months correlation between Central and Natures is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Natures Sunshine Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natures Sunshine Products and Central Garden 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 Central Garden Pet are associated (or correlated) with Natures Sunshine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natures Sunshine Products has no effect on the direction of Central Garden i.e., Central Garden and Natures Sunshine go up and down completely randomly.

Pair Corralation between Central Garden and Natures Sunshine

Assuming the 90 days horizon Central Garden Pet is expected to generate 1.02 times more return on investment than Natures Sunshine. However, Central Garden is 1.02 times more volatile than Natures Sunshine Products. It trades about -0.06 of its potential returns per unit of risk. Natures Sunshine Products is currently generating about -0.19 per unit of risk. If you would invest  3,636  in Central Garden Pet on January 29, 2024 and sell it today you would lose (82.00) from holding Central Garden Pet or give up 2.26% of portfolio value over 90 days.

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

Central Garden Pet  vs.  Natures Sunshine Products

Central Garden Pet

Risk-Adjusted Performance

2 of 100

Weak

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

Natures Sunshine Products

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Natures Sunshine Products are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Natures Sunshine may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Central Garden and Natures Sunshine

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

The idea behind Central Garden Pet and Natures Sunshine Products 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.