Correlation Between Analog Devices and BCE

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

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

Diversification Opportunities for Analog Devices and BCE

0.8

Correlation Coefficient

Analog Devices  BCE

Very poor diversification

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

Pair Corralation between Analog Devices and BCE

Considering the 90-day investment horizon Analog Devices is expected to generate 1.65 times more return on investment than BCE. However, Analog Devices is 1.65 times more volatile than BCE Inc. It trades about 0.04 of its potential returns per unit of risk. BCE Inc is currently generating about -0.08 per unit of risk. If you would invest  15,823  in Analog Devices on September 20, 2024 and sell it today you would earn a total of  4,955  from holding Analog Devices or generate 31.32% return on investment over 90 days.

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

Analog Devices  vs.  BCE Inc

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

BCE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Analog Devices and BCE

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

The idea behind Analog Devices and BCE Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.