Correlation Between Target and Natural Grocers

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

By analyzing existing cross correlation between Target and Natural Grocers by, you can compare the effects of market volatilities on Target and Natural Grocers 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 Target with a short position of Natural Grocers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target and Natural Grocers.

Diversification Opportunities for Target and Natural Grocers

0.8

Correlation Coefficient

Target  Natural Grocers

Very poor diversification

The 3 months correlation between Target and Natural is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Target and Natural Grocers by in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Grocers by and Target 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 Target are associated (or correlated) with Natural Grocers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Grocers by has no effect on the direction of Target i.e., Target and Natural Grocers go up and down completely randomly.

Pair Corralation between Target and Natural Grocers

Considering the 90-day investment horizon Target is expected to generate 8.63 times less return on investment than Natural Grocers. But when comparing it to its historical volatility, Target is 1.53 times less risky than Natural Grocers. It trades about 0.01 of its potential returns per unit of risk. Natural Grocers by is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  897.00  in Natural Grocers by on February 5, 2024 and sell it today you would earn a total of  841.00  from holding Natural Grocers by or generate 93.76% return on investment over 90 days.

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

Target  vs.  Natural Grocers by

Target

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Target may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Natural Grocers by

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Grocers by are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Natural Grocers exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Target and Natural Grocers

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

The idea behind Target and Natural Grocers by 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.