Correlation Between Berkshire Hathaway and Advanced Medical

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

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

Diversification Opportunities for Berkshire Hathaway and Advanced Medical

0.11

Correlation Coefficient

Berkshire Hathaway  Advanced Medical

Average diversification

The 3 months correlation between Berkshire and Advanced is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Advanced Medical Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Medical Sol and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Advanced Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Medical Sol has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Advanced Medical go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Advanced Medical

Assuming the 90 days trading horizon Berkshire Hathaway is expected to under-perform the Advanced Medical. But the stock apears to be less risky and, when comparing its historical volatility, Berkshire Hathaway is 3.19 times less risky than Advanced Medical. The stock trades about -0.07 of its potential returns per unit of risk. The Advanced Medical Solutions is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  20,400  in Advanced Medical Solutions on October 12, 2024 and sell it today you would lose (1,340) from holding Advanced Medical Solutions or give up 6.57% of portfolio value over 90 days.

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

Berkshire Hathaway  vs.  Advanced Medical Solutions

Berkshire Hathaway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkshire Hathaway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Advanced Medical Sol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Medical Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Advanced Medical is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Berkshire Hathaway and Advanced Medical

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

The idea behind Berkshire Hathaway and Advanced Medical Solutions 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.