Correlation Between National Beverage and Evolution Petroleum

Can any of the company-specific risk be diversified away by investing in both National Beverage and Evolution Petroleum 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 Evolution Petroleum 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 Evolution Petroleum, you can compare the effects of market volatilities on National Beverage and Evolution Petroleum 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 Evolution Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Evolution Petroleum.

Diversification Opportunities for National Beverage and Evolution Petroleum

0.56

Correlation Coefficient

National Beverage  Evolution Petroleum

Very weak diversification

The 3 months correlation between National and Evolution is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum 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 Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of National Beverage i.e., National Beverage and Evolution Petroleum go up and down completely randomly.

Pair Corralation between National Beverage and Evolution Petroleum

Given the investment horizon of 90 days National Beverage is expected to generate 2.37 times less return on investment than Evolution Petroleum. But when comparing it to its historical volatility, National Beverage Corp is 1.56 times less risky than Evolution Petroleum. It trades about 0.17 of its potential returns per unit of risk. Evolution Petroleum is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  521.00  in Evolution Petroleum on September 4, 2024 and sell it today you would earn a total of  59.00  from holding Evolution Petroleum or generate 11.32% return on investment over 90 days.

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

National Beverage Corp  vs.  Evolution Petroleum

National Beverage Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, National Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Evolution Petroleum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Evolution Petroleum displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and Evolution Petroleum

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

The idea behind National Beverage Corp and Evolution Petroleum 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.