Correlation Between ABC TRANSPORT and BUA FOODS

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

By analyzing existing cross correlation between ABC TRANSPORT PLC and BUA FOODS PLC, you can compare the effects of market volatilities on ABC TRANSPORT and BUA FOODS 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 ABC TRANSPORT with a short position of BUA FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC TRANSPORT and BUA FOODS.

Diversification Opportunities for ABC TRANSPORT and BUA FOODS

0.22

Correlation Coefficient

ABC TRANSPORT  BUA FOODS

Modest diversification

The 3 months correlation between ABC and BUA is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding ABC TRANSPORT PLC and BUA FOODS PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BUA FOODS PLC and ABC TRANSPORT 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 ABC TRANSPORT PLC are associated (or correlated) with BUA FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BUA FOODS PLC has no effect on the direction of ABC TRANSPORT i.e., ABC TRANSPORT and BUA FOODS go up and down completely randomly.

Pair Corralation between ABC TRANSPORT and BUA FOODS

Assuming the 90 days trading horizon ABC TRANSPORT PLC is expected to generate 1.71 times more return on investment than BUA FOODS. However, ABC TRANSPORT is 1.71 times more volatile than BUA FOODS PLC. It trades about 0.12 of its potential returns per unit of risk. BUA FOODS PLC is currently generating about 0.06 per unit of risk. If you would invest  123.00  in ABC TRANSPORT PLC on December 24, 2024 and sell it today you would earn a total of  30.00  from holding ABC TRANSPORT PLC or generate 24.39% return on investment over 90 days.

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

ABC TRANSPORT PLC  vs.  BUA FOODS PLC

ABC TRANSPORT PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABC TRANSPORT PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, ABC TRANSPORT displayed solid returns over the last few months and may actually be approaching a breakup point.

BUA FOODS PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BUA FOODS PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BUA FOODS may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ABC TRANSPORT and BUA FOODS

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

The idea behind ABC TRANSPORT PLC and BUA FOODS PLC 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.