Correlation Between Total Soft and BH

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

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

Diversification Opportunities for Total Soft and BH

0.63

Correlation Coefficient

Total Soft  BH

Poor diversification

The 3 months correlation between Total and BH is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Total Soft Bank and BH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BH Co and Total Soft 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 Total Soft Bank are associated (or correlated) with BH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BH Co has no effect on the direction of Total Soft i.e., Total Soft and BH go up and down completely randomly.

Pair Corralation between Total Soft and BH

Assuming the 90 days trading horizon Total Soft Bank is expected to generate 2.53 times more return on investment than BH. However, Total Soft is 2.53 times more volatile than BH Co. It trades about -0.02 of its potential returns per unit of risk. BH Co is currently generating about -0.16 per unit of risk. If you would invest  943,000  in Total Soft Bank on December 30, 2024 and sell it today you would lose (119,000) from holding Total Soft Bank or give up 12.62% of portfolio value over 90 days.

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

Total Soft Bank  vs.  BH Co

Total Soft Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Total Soft Bank 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.

BH Co

Risk-Adjusted Performance

Very Weak

Over the last 90 days BH Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Total Soft and BH

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

The idea behind Total Soft Bank and BH 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.