Correlation Between Central Garden and United Guardian

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

Diversification Opportunities for Central Garden and United Guardian

0.47

Correlation Coefficient

Central Garden  United Guardian

Very weak diversification

The 3 months correlation between Central and United is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and United Guardian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Guardian 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 United Guardian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Guardian has no effect on the direction of Central Garden i.e., Central Garden and United Guardian go up and down completely randomly.

Pair Corralation between Central Garden and United Guardian

Assuming the 90 days horizon Central Garden Pet is expected to under-perform the United Guardian. But the stock apears to be less risky and, when comparing its historical volatility, Central Garden Pet is 1.17 times less risky than United Guardian. The stock trades about -0.87 of its potential returns per unit of risk. The United Guardian is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  915.00  in United Guardian on March 19, 2024 and sell it today you would lose (15.00) from holding United Guardian or give up 1.64% of portfolio value over 90 days.

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

Central Garden Pet  vs.  United Guardian

Central Garden Pet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

United Guardian

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Guardian are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, United Guardian reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Garden and United Guardian

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

The idea behind Central Garden Pet and United Guardian 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.