Correlation Between BGF Retail and Dreamus

Can any of the company-specific risk be diversified away by investing in both BGF Retail and Dreamus 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 Dreamus 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 Dreamus Company, you can compare the effects of market volatilities on BGF Retail and Dreamus 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 Dreamus. Check out your portfolio center. Please also check ongoing floating volatility patterns of BGF Retail and Dreamus.

Diversification Opportunities for BGF Retail and Dreamus

0.65

Correlation Coefficient

BGF Retail  Dreamus

Poor diversification

The 3 months correlation between BGF and Dreamus is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BGF Retail Co and Dreamus Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreamus Company 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 Dreamus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreamus Company has no effect on the direction of BGF Retail i.e., BGF Retail and Dreamus go up and down completely randomly.

Pair Corralation between BGF Retail and Dreamus

Assuming the 90 days trading horizon BGF Retail Co is expected to under-perform the Dreamus. But the stock apears to be less risky and, when comparing its historical volatility, BGF Retail Co is 1.96 times less risky than Dreamus. The stock trades about -0.06 of its potential returns per unit of risk. The Dreamus Company is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  281,000  in Dreamus Company on October 4, 2024 and sell it today you would lose (112,800) from holding Dreamus Company or give up 40.14% of portfolio value over 90 days.

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

BGF Retail Co  vs.  Dreamus Company

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.

Dreamus Company

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BGF Retail and Dreamus

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

The idea behind BGF Retail Co and Dreamus Company 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.