Correlation Between Bains Mer and Sidetrade

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

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

Diversification Opportunities for Bains Mer and Sidetrade

-0.07

Correlation Coefficient

Bains Mer  Sidetrade

Good diversification

The 3 months correlation between Bains and Sidetrade is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Bains Mer Monaco and Sidetrade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sidetrade and Bains Mer 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 Bains Mer Monaco are associated (or correlated) with Sidetrade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sidetrade has no effect on the direction of Bains Mer i.e., Bains Mer and Sidetrade go up and down completely randomly.

Pair Corralation between Bains Mer and Sidetrade

Assuming the 90 days trading horizon Bains Mer Monaco is expected to under-perform the Sidetrade. But the stock apears to be less risky and, when comparing its historical volatility, Bains Mer Monaco is 1.52 times less risky than Sidetrade. The stock trades about -0.02 of its potential returns per unit of risk. The Sidetrade is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  22,800  in Sidetrade on November 30, 2024 and sell it today you would earn a total of  3,900  from holding Sidetrade or generate 17.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Bains Mer Monaco  vs.  Sidetrade

Bains Mer Monaco

Risk-Adjusted Performance

Very Weak

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

Sidetrade

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sidetrade are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Sidetrade reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bains Mer and Sidetrade

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

The idea behind Bains Mer Monaco and Sidetrade 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.