Correlation Between Tractor Supply and Sprouts Farmers
Can any of the company-specific risk be diversified away by investing in both Tractor Supply and Sprouts Farmers 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 Tractor Supply and Sprouts Farmers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tractor Supply and Sprouts Farmers Market, you can compare the effects of market volatilities on Tractor Supply and Sprouts Farmers 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 Tractor Supply with a short position of Sprouts Farmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tractor Supply and Sprouts Farmers.
Diversification Opportunities for Tractor Supply and Sprouts Farmers
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Tractor and Sprouts is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Tractor Supply and Sprouts Farmers Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprouts Farmers Market and Tractor Supply 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 Tractor Supply are associated (or correlated) with Sprouts Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprouts Farmers Market has no effect on the direction of Tractor Supply i.e., Tractor Supply and Sprouts Farmers go up and down completely randomly.
Pair Corralation between Tractor Supply and Sprouts Farmers
Given the investment horizon of 90 days Tractor Supply is expected to under-perform the Sprouts Farmers. But the stock apears to be less risky and, when comparing its historical volatility, Tractor Supply is 1.08 times less risky than Sprouts Farmers. The stock trades about -0.04 of its potential returns per unit of risk. The Sprouts Farmers Market is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 6,343 in Sprouts Farmers Market on January 24, 2024 and sell it today you would earn a total of 206.00 from holding Sprouts Farmers Market or generate 3.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Tractor Supply vs. Sprouts Farmers Market
Performance |
Timeline |
Tractor Supply |
Sprouts Farmers Market |
Tractor Supply and Sprouts Farmers Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Tractor Supply and Sprouts Farmers
The main advantage of trading using opposite Tractor Supply and Sprouts Farmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tractor Supply position performs unexpectedly, Sprouts Farmers 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 Sprouts Farmers will offset losses from the drop in Sprouts Farmers' long position.The idea behind Tractor Supply and Sprouts Farmers Market 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.Sprouts Farmers vs. Big Lots | Sprouts Farmers vs. Aquagold International | Sprouts Farmers vs. Thrivent High Yield | Sprouts Farmers vs. Morningstar Unconstrained Allocation |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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