Can any of the company-specific risk be diversified away by investing in both Primo Water and GURU Organic 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 Primo Water and GURU Organic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Primo Water Corp and GURU Organic Energy, you can compare the effects of market volatilities on Primo Water and GURU Organic 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 Primo Water with a short position of GURU Organic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Primo Water and GURU Organic.
Diversification Opportunities for Primo Water and GURU Organic
The 3 months correlation between Primo and GURU is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Primo Water Corp and GURU Organic Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GURU Organic Energy and Primo Water 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 Primo Water Corp are associated (or correlated) with GURU Organic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GURU Organic Energy has no effect on the direction of Primo Water i.e., Primo Water and GURU Organic go up and down completely randomly.
Pair Corralation between Primo Water and GURU Organic
Given the investment horizon of 90 days Primo Water Corp is expected to generate 1.26 times more return on investment than GURU Organic. However, Primo Water is 1.26 times more volatile than GURU Organic Energy. It trades about 0.52 of its potential returns per unit of risk. GURU Organic Energy is currently generating about 0.23 per unit of risk. If you would invest 1,990 in Primo Water Corp on March 6, 2024 and sell it today you would earn a total of 288.00 from holding Primo Water Corp or generate 14.47% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Primo Water Corp are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Primo Water showed solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in GURU Organic Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GURU Organic is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.