Correlation Between BGF Retail and TCC Steel

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

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

Diversification Opportunities for BGF Retail and TCC Steel

0.8

Correlation Coefficient

BGF Retail  TCC Steel

Very poor diversification

The 3 months correlation between BGF and TCC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BGF Retail Co and TCC Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCC Steel Corp and BGF Retail 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 BGF Retail Co are associated (or correlated) with TCC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCC Steel Corp has no effect on the direction of BGF Retail i.e., BGF Retail and TCC Steel go up and down completely randomly.

Pair Corralation between BGF Retail and TCC Steel

Assuming the 90 days trading horizon BGF Retail Co is expected to generate 0.5 times more return on investment than TCC Steel. However, BGF Retail Co is 1.99 times less risky than TCC Steel. It trades about -0.06 of its potential returns per unit of risk. TCC Steel Corp is currently generating about -0.17 per unit of risk. If you would invest  11,080,000  in BGF Retail Co on October 25, 2024 and sell it today you would lose (820,000) from holding BGF Retail Co or give up 7.4% of portfolio value over 90 days.

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

BGF Retail Co  vs.  TCC Steel Corp

BGF Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BGF Retail Co 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.

TCC Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TCC Steel Corp 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BGF Retail and TCC Steel

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

The idea behind BGF Retail Co and TCC Steel Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .