Correlation Between ICD and BGF Retail

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

By analyzing existing cross correlation between ICD Co and BGF Retail Co, you can compare the effects of market volatilities on ICD and BGF Retail 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 ICD with a short position of BGF Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of ICD and BGF Retail.

Diversification Opportunities for ICD and BGF Retail

-0.34

Correlation Coefficient

ICD  BGF Retail

Very good diversification

The 3 months correlation between ICD and BGF is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding ICD Co and BGF Retail Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF Retail and ICD 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 ICD Co are associated (or correlated) with BGF Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF Retail has no effect on the direction of ICD i.e., ICD and BGF Retail go up and down completely randomly.

Pair Corralation between ICD and BGF Retail

Assuming the 90 days trading horizon ICD Co is expected to generate 3.74 times more return on investment than BGF Retail. However, ICD is 3.74 times more volatile than BGF Retail Co. It trades about 0.04 of its potential returns per unit of risk. BGF Retail Co is currently generating about 0.13 per unit of risk. If you would invest  423,000  in ICD Co on December 27, 2024 and sell it today you would earn a total of  26,500  from holding ICD Co or generate 6.26% return on investment over 90 days.

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

ICD Co  vs.  BGF Retail Co

ICD Co

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICD Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ICD sustained solid returns over the last few months and may actually be approaching a breakup point.

BGF Retail

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BGF Retail Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BGF Retail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ICD and BGF Retail

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

The idea behind ICD Co and BGF Retail Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.