Correlation Between Custodian BCI and NewFunds Low

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

By analyzing existing cross correlation between Custodian BCI Balanced and NewFunds Low Volatility, you can compare the effects of market volatilities on Custodian BCI and NewFunds Low 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 Custodian BCI with a short position of NewFunds Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of Custodian BCI and NewFunds Low.

Diversification Opportunities for Custodian BCI and NewFunds Low

0.6

Correlation Coefficient

Custodian BCI  NewFunds Low

Poor diversification

The 3 months correlation between Custodian and NewFunds is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Custodian BCI Balanced and NewFunds Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewFunds Low Volatility and Custodian BCI 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 Custodian BCI Balanced are associated (or correlated) with NewFunds Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewFunds Low Volatility has no effect on the direction of Custodian BCI i.e., Custodian BCI and NewFunds Low go up and down completely randomly.

Pair Corralation between Custodian BCI and NewFunds Low

Assuming the 90 days trading horizon Custodian BCI is expected to generate 1.44 times less return on investment than NewFunds Low. But when comparing it to its historical volatility, Custodian BCI Balanced is 1.66 times less risky than NewFunds Low. It trades about 0.1 of its potential returns per unit of risk. NewFunds Low Volatility is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  107,700  in NewFunds Low Volatility on December 4, 2024 and sell it today you would earn a total of  15,400  from holding NewFunds Low Volatility or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	81.07%
Values	Daily Returns

Custodian BCI Balanced  vs.  NewFunds Low Volatility

Custodian BCI Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Custodian BCI Balanced has generated negative risk-adjusted returns adding no value to fund investors. Despite fairly strong basic indicators, Custodian BCI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

NewFunds Low Volatility

Risk-Adjusted Performance

Very Weak

Over the last 90 days NewFunds Low Volatility has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, NewFunds Low is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Custodian BCI and NewFunds Low

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

The idea behind Custodian BCI Balanced and NewFunds Low Volatility 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.