Correlation Between Rakuten and Natural Health

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

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

Diversification Opportunities for Rakuten and Natural Health

0.53

Correlation Coefficient

Rakuten  Natural Health

Very weak diversification

The 3 months correlation between Rakuten and Natural is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Rakuten Inc ADR and Natural Health Trend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Health Trend and Rakuten 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 Rakuten Inc ADR are associated (or correlated) with Natural Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Health Trend has no effect on the direction of Rakuten i.e., Rakuten and Natural Health go up and down completely randomly.

Pair Corralation between Rakuten and Natural Health

Assuming the 90 days horizon Rakuten Inc ADR is expected to under-perform the Natural Health. In addition to that, Rakuten is 1.08 times more volatile than Natural Health Trend. It trades about -0.38 of its total potential returns per unit of risk. Natural Health Trend is currently generating about 0.01 per unit of volatility. If you would invest  671.00  in Natural Health Trend on January 31, 2024 and sell it today you would earn a total of  1.00  from holding Natural Health Trend or generate 0.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Rakuten Inc ADR  vs.  Natural Health Trend

Rakuten Inc ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rakuten Inc ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Rakuten may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Natural Health Trend

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Health Trend are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Natural Health may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Rakuten and Natural Health

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

The idea behind Rakuten Inc ADR and Natural Health Trend 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.