Correlation Between BHI and DreamCIS

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

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

Diversification Opportunities for BHI and DreamCIS

-0.57

Correlation Coefficient

BHI  DreamCIS

Excellent diversification

The 3 months correlation between BHI and DreamCIS is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding BHI Co and DreamCIS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DreamCIS and BHI 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 BHI Co are associated (or correlated) with DreamCIS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DreamCIS has no effect on the direction of BHI i.e., BHI and DreamCIS go up and down completely randomly.

Pair Corralation between BHI and DreamCIS

Assuming the 90 days trading horizon BHI Co is expected to generate 1.68 times more return on investment than DreamCIS. However, BHI is 1.68 times more volatile than DreamCIS. It trades about 0.27 of its potential returns per unit of risk. DreamCIS is currently generating about 0.32 per unit of risk. If you would invest  1,296,000  in BHI Co on October 10, 2024 and sell it today you would earn a total of  273,000  from holding BHI Co or generate 21.06% return on investment over 90 days.

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

BHI Co  vs.  DreamCIS

BHI Co

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BHI Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BHI sustained solid returns over the last few months and may actually be approaching a breakup point.

DreamCIS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DreamCIS 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.

Pair Trading with BHI and DreamCIS

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

The idea behind BHI Co and DreamCIS 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.