Correlation Between Bread Financial and BMEB4F

Can any of the company-specific risk be diversified away by investing in both Bread Financial and BMEB4F 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 Bread Financial and BMEB4F into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bread Financial Holdings and BMEB4F, you can compare the effects of market volatilities on Bread Financial and BMEB4F 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 Bread Financial with a short position of BMEB4F. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bread Financial and BMEB4F.

Diversification Opportunities for Bread Financial and BMEB4F

-0.01

Correlation Coefficient

Bread Financial  BMEB4F

Good diversification

The 3 months correlation between Bread and BMEB4F is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and BMEB4F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMEB4F and Bread Financial 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 Bread Financial Holdings are associated (or correlated) with BMEB4F. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMEB4F has no effect on the direction of Bread Financial i.e., Bread Financial and BMEB4F go up and down completely randomly.

Pair Corralation between Bread Financial and BMEB4F

Assuming the 90 days trading horizon Bread Financial Holdings is expected to under-perform the BMEB4F. But the stock apears to be less risky and, when comparing its historical volatility, Bread Financial Holdings is 1.56 times less risky than BMEB4F. The stock trades about -0.21 of its potential returns per unit of risk. The BMEB4F is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,902  in BMEB4F on October 10, 2024 and sell it today you would lose (42.00) from holding BMEB4F or give up 1.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.47%
Values	Daily Returns

Bread Financial Holdings  vs.  BMEB4F

Bread Financial Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

BMEB4F

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMEB4F has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, BMEB4F is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bread Financial and BMEB4F

The main advantage of trading using opposite Bread Financial and BMEB4F positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial position performs unexpectedly, BMEB4F 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 BMEB4F will offset losses from the drop in BMEB4F's long position.

The idea behind Bread Financial Holdings and BMEB4F 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 Anywhere module to track or share privately all of your investments from the convenience of any device.